fkp property group half year results presentation · rvg new zealand 3,136 . 247 . 3,383 . total ....

FKP Property Group Half Year Results Presentation

23 February 2012

1. Overview

2. Divisional Commentary

3. Capital Management

4. Strategy and Outlook

5. Appendices

Contents

Luxe Woolloomooloo, NSW

3 3

Market sentiment in the residential sector has slowed sales rates across residential development projects

Has also resulted in longer lead times between deposit and settlement of sales for units in the retirement

portfolio

Sentiment in residential sector impacting results

Some sectors and geographical markets performing better than others

Continuing targeted roll out of development pipeline across residential, retirement and commercial projects

Diversity of portfolio providing support to overall results

Aerial apartment project deferred, with settlement expected in the first quarter of FY13

Underlying profit for FY12 likely to fall in a range of FY10 to FY11 results, pre the adjustment for Aerial

Slowdown to impact FY12 underlying profit levels

Overview

4 4

Outcome HY12 HY11 Comment

Underlying profit after tax $43.1m $54.6m Skewed to second half in line with

guidance

Statutory profit after tax $12.7m $54.6m Largely impacted by changes in fair

value of interest rate swaps

Underlying EPS 3.6cps 4.7cps Represents an annualised earnings

yield of approximately 12%

Recurring income percentage1 65% 61% In line with 50:50 split over cycle

Distribution 1.4cps 1.4cps Distribution weighted to the second

half

NTA per unit $1.22 $1.24 Impacted by changes in fair values

Gearing 30.9% 29.3% Well under the target gearing

ceiling of 35%

Key Outcomes

1 Excludes retirement valuation

5 5

HY12 ($m)

HY11

($m) Change

Residential Communities and Apartments 10.7 14.9 (28%)

Retirement operations 9.8 22.9 (57%)

Retirement valuation 40.0 37.9 5%

Commercial and Industrial 4.7 13.7 (65%)

Funds and Investments 5.2 6.0 (13%)

Corporate overheads (7.9) (8.4) (6%)

EBITDA 62.5 87.0 (28%)

Depreciation and amortisation (1.6) (1.6) -

EBIT 60.9 85.4 (28%)

Interest and borrowings expense (7.3) (13.3) (45%)

Profit Before Tax 53.6 72.1 (26%)

Income tax (7.8) (14.5) 46%

Profit After Tax 45.7 57.6 (20%)

Non-controlling interests (2.7) (3.0) (10%)

Net Underlying Profit1 43.1 54.6 (21%)

Divisional Contributions

1 The underlying profit has been calculated as per the AICD Underlying Profit Guidelines

1. Overview




5. Appendices

Contents

Lifestyle Centre, Saltwater Coast Point Cook, VIC

7 7

Key Performance Indicators HY12 HY11 Change

Divisional profit contribution $10.7m $14.9m (28%)

Sales revenue $47.7m $80.6m (41%)

Land lot sales 165 207 (20%)

Built product sales 7 63 (88%)

Average margin (incl interest) 25% 28% (3%)

Average margin (excl interest) 36% 36% -

Residential Communities and Apartment Deposit Flow

Residential: Communities and Apartments

Results at Saltwater Coast have been impacted by softer market conditions and inclement weather

Delays in achieving required council approvals impacted the number of settlements at Rochedale Estates

These approvals have now been achieved and work on completing Queensland’s largest builder display village is currently under way

Sales volumes at Peregian Springs have held up although the mix has tended towards the lower priced available stock

Construction at Aerial apartment development continues

Overall contracts on hand are marginally higher than six months ago with new deposits more than offsetting sale settlements

8 8

Residential: Diversity of Product Offering

The FKP residential product offering is diversified by both geography and product type

This provides a strong base from which to withstand any temporary slowdown in the underlying residential market

Delivered

Under Construction

Delivered Under Construction

Under Construction

Selling

Apartments Communities

QLD

NSW

VIC

9 9

Continued roll out of stages across established communities at Saltwater Coast and Peregian Springs and Ridges

Build on momentum at Rochedale, with the completion of the builders display village and the arrival of the first residents expected over the coming months

First settlements at Mulgoa Rise, the premium sustainable village undertaken through Mulpha FKP, expected in mid 2012

Land projects State

Remaining lots approx.

Estimated remaining value ($m)

Target annual lot sales

Remaining project life

Saltwater Coast, Point Cook VIC 1,500 $500m 250-300 5+ years

Peregian Springs & Ridges, Peregian Springs QLD 1,000 $310m 100-150 6+ years

The Rochedale Estates, Rochedale QLD 950 $285m 150-200 5+ years

Mulgoa Rise, Mulgoa NSW 600 $220m 100-125 5+ years

Other 800 $370m 100-150 5+ years

Total 4,850 $1,685m

Note: Excludes approximately 3,000 lots controlled by Port Bouvard

Residential: Communities – Outlook

10 10

Apartment projects Location Status Total Residential

Units Available for

Sale Percentage

Sold

Current Projects

Aerial, Camberwell VIC Under Construction 144 22 85%

Luxe, Woolloomooloo NSW Under Construction 77 29 62%

The Milton, Milton QLD Currently selling 298 162 46%

Hudson, Albion QLD Currently Selling 134 110 18%

Subtotal 653 323 51%

Future Projects

Albion Mill, Albion QLD Future Stages 275

The Gasworks Residential, Newstead QLD Sales Launch 2nd half FY12 900

Subtotal 1,175

Total 1,828

Residential: Apartments – Outlook

Managing Aerial construction timetable to ensure delivery and settlement as soon as possible

Construction commenced at Luxe

Focus at The Milton and Hudson, Albion on achieving pre sales to facilitate project financing

Preparing for launch of initial stage of Gasworks apartment development to complement the construction already underway on next stage of the commercial and retail precinct

11 11

Retirement: Results



Revaluation contribution $40.0m $37.9m 5%

Total contribution $49.8m $60.8m (18%)

Gross DMF / CG generated $17.2m $24.2m (29%)

Avg DMF/CG transaction price point $275k $250k 10%

Avg DMF/CG per transaction $94k $86k 9%

Average DMF rate of existing contracts 30% 30% -

Average capital gain share of existing contracts

50% 51% (1%)

Resales 197 250 (21%)

New sales 8 13 (38%)

Total Sales 205 263 (22%)

Portfolio turnover (based on sales) 7% 9% (2%)

Occupancy 92% 94% (2%)

Net buyback purchases/(sales) (13) 32 (141%)

Average age of residents 82.6 82.2 -

Underlying property value $2.0b $1.9b 5%

Lower level of resident to resident resales and new sales reflecting slow down in general residential market

Solid levels of deposits on hand but time between deposit and settlement has increased, reflecting the increased period required by new residents to sell their existing homes

Although overall transaction levels are down, average transaction price point and consequently average DMF/CG per transaction have continued to increase

Average age of the existing residents in the portfolio continues to lift

Targeted roll out of brownfield development pipeline continues with 24 new units delivered at Albany Creek village

Major assumptions used in the retirement investment property valuation are consistent with those used at 30 June 2011

12 12

Retirement: Ramping Up the Refurbishment Program

Slower sales environment is providing an opportunity for FKP to selectively ramp up its buyback and redevelopment program

49 buybacks completed during HY12

Expecting to complete at least this many again by end of FY12

Capital then invested to refurbish with a new kitchen, bathroom and upgraded designs

Refurbishment opportunities are only available at mature villages such as FKP’s

Provides several key benefits to FKP

― Unit re-enters available pool at a higher price point which results in a step up to a higher DMF cash flow at next turnover

― FKP generates a small development profit on the difference between the refurbishment cost and the increased sales price

― Refurbished units are more attractive to prospective buyers and generally have shorter listing periods than non-refurbished

Illustrative Buyback and Refurbishment Case Study

Transaction Steps

Step 1

― FKP buys back unit from an outgoing resident at a price reflecting the unit value as is eg: $300,000

Step 2

― FKP invests capital (eg: $40,000) in a major upgrade to the unit (new bathroom, kitchen, etc)

Step 3

― FKP sells the upgraded unit to a new resident at a new sale price (eg: $350,000)

Financial Impact

Development profit of $10,000 achieved on the difference between sale price ($350,000) and the unit cost base ($300,000 + $40,000)

Future DMF based upon a higher property price benchmark of $350,000 instead of $300,000

Capital required for program can be continually recycled into new buyback and refurbishment opportunities as refurbished units are resold

13 13

Units Existing Pipeline Total

FKP Balance Sheet1 5,018 298 5,316

Forest Place Group Balance Sheet2 1,265 396 1,661

RVG Australia 3,525 515 4,040

Total Managed 9,808 1,209 11,017

RVG New Zealand 3,136 247 3,383

Total 12,944 1,456 14,400

1 Includes 42 units not offered for accommodation purposes eg manager’s units 2 Includes 10 units not offered for accommodation purposes eg manager’s units

Retirement: Outlook

FKP is conducting a strategic review of the retirement assets to ensure the operations are positioned to maximise cash returns

Expected pick up in resale volumes in second half of FY12

Key to performance will be lifting the conversion rate achieved from deposits to sales

A number of focused marketing and sales initiatives are being implemented to lift sales momentum

Unit buyback and refurbishment program expected to continue to expand

New unit development expenditure being postponed at some villages to reflect the slower selling environment

However still expecting development of approximately 20 new units to be completed across the Durack and Island Point villages by year end

14 14

Commercial and Industrial



Comprised of: Trading ($0.8m) $4.3m (114%)

Recurring $5.5m $9.4m (41%)

Trading sales revenue $6.3m $28.1m (77%)

Properties held 6 9 (33%)

465 Victoria Ave Chatswood Redevelopment

Existing 15,000 sqm commercial office building

$25m refurbishment to lift building to A grade standard is underway and expected to be completed in May 2012

Doubling of existing retail podium area as part of redevelopment

Already have an agreement with Vodafone to lease approximately 40% of the office space in the redeveloped tower

Trading

Trading contribution mainly relates to sell down of low margin existing legacy stock

Construction of stage 2 at The Gasworks is on track to be completed by mid 2013

Enquiry continues to be strong and the retail component of Stage 2 is expected to be fully leased before the end of the financial year

Recurring

Lower recurring income due to

― Lower number of properties held following series of selected asset sales

― Loss of rental income from Victoria Ave which is undergoing redevelopment

Spring St office property sold in September 2011

Will continue to examine opportunities for disposal of selected assets in line with capital efficiency strategy

15 15

Funds Management and Investments: Results

Underlying Profit Contribution HY12 ($m)

HY11 ($m)

Change

Funds Management 0.1 - 100%

Retirement Villages Group 3.6 2.3 56%

Port Bouvard1 0.7 3.2 (78%)

Other 0.8 0.6 33%

Total 5.2 6.0 (13%)

RVG

RVG portfolio impacted by similar trading conditions as the FKP retirement portfolio

Proceeds from sell down of stake in Metlifecare used to lower fund gearing levels

In January 2012 FKP finalised the acquisition of the 50% of the RVG Fund Manager it did not own from Macquarie

Full ownership of fund management entity complements the asset management services that were already provided by FKP to RVG’s Australian retirement villages

Consolidation of ownership provides a more integrated framework to drive investor returns

Immediate focus on working with investors and banks to develop an optimal long term capital structure

Examining strategic options for maximising value of RVG as part of a review of the broader FKP retirement portfolio which also includes FKP’s 100% owned on balance sheet assets and Forest Place Group

Port Bouvard

Result impacted by slowdown in sales rate at Oceanique premium apartment development

Continuing to work through required planning approvals at Point Grey with first settlements expected in FY13

1 Based on FKP’s cost base which is lower than reported in Port Bouvard’s statutory accounts

1. Overview




5. Appendices

Contents

Aveo Mingarra Croydon, VIC

17 17

Capital Management: Funding Requirements

The settlement of Aerial will provide a significant amount of capital for reinvestment into new developments

Even with the deferral of the Aerial settlements, sufficient liquidity exists to fund operations

Any sale of property trust assets or additional project finance facilities would add to the funding capacity shown below, just as repayment of project finance facilities decreases the surplus capacity

Chart 1: Forecast 2HY12 Sources & Uses with Aerial FY12 Settlement

Chart 2: Forecast 2HY12 Sources & Uses with Aerial FY13 Settlement

Note: Capacity is dependent upon having sufficient security

Net development cash inflows of $79m

Net development cash outflows of $32m Net $111m

reduction

Net $16m movement in surplus capacity

18 18

Capital Management: Metrics

Metrics HY12 FY11

Statutory balance sheet gearing 20.9% 19.4%

Reported gearing 30.9% 28.9%

Covenant gearing (limit 55%) 41.8% 39.8%

ICR (minimum 2.0x) 4.2x 4.3x

Total interest bearing liabilities $882m $803m

Undrawn committed lines2,3,4 $208m $207m

Available facilities3 $77m $89m

Weighted average borrowing cost1,4 8.3% 8.5%

Weighted average debt maturity4 2.8 years 2.2 years

Hedged % on drawn debt 78.9% 85.3%

Hedged % on facility limit4 64.7% 68.7%

Weighted average hedge maturity 3.4 years 3.9 years

Reported gearing, measured as net debt divided by cash adjusted asset (net of resident loans) is at 30.9%

Interest coverage ratio comfortable at 4.2 times against group covenant of > 2.0 times

Facility agreements have been executed with lenders to extend both the Development MOF facility and the Property Trust facility for 3 years

Terms have been agreed for a new $80m Forest Place Group facility for 5 years

Weighted average borrowing cost is 8.3% with a weighted average debt maturity of 2.8 years post the refinance of the Development MOF and Property Trust

Currently hedged at 64.7% of facility limit with a weighted average time to maturity of 3.4 years

All covenants met

1 Includes margin and line fees 2 Undrawn facilities are dependant upon having sufficient security 3 Includes available cash 4 Shown post refinance of Property Trust, Development MOF facilities and Forest Place Group and new LUXE project finance facility

1. Overview




5. Appendices

Contents

The Rochedale Estates Rochedale, QLD

20 20

Strategy and Outlook

Implementing new strategies to assist with a more challenging sales environment

The quality of projects allows the continued selected roll out of the development pipeline across the

retirement, residential and commercial divisions

Focus on executing current projects and plans

Sales rates across retirement and residential dependent on a pick up in general residential market conditions

Impact more on volumes than prices, which has the effect of delaying profit until future periods rather than a

permanent loss in profit

Residential market sentiment to continue to impact trading conditions

Deferral of Aerial settlements to shift $16.7m of net profit after tax from FY12 to FY13

Underlying profit for FY12 likely to fall within a range of FY10 to FY11 underlying profit adjusted for Aerial,

being a range of $91.9m1 to $104.3m2

FY12 underlying profit impacted by Aerial delay and residential sales rates

1 FY10 = $108.6 million, less Aerial $16.7 million = $91.9 million 2 FY11 = $121.0 million, less Aerial $16.7 million = $104.3 million

1. Overview




5. Appendices

Contents

Sackville Grange Kew, VIC

22 22

Appendices

Appendix 1 Detailed Financial Information

Appendix 2 Retirement Annuity Stream Valuation

Appendix 3 Property Trust Valuation

Appendix 4 Capital Management

23 23

Reconciliation of Statutory Profit to Underlying Profit

HY12 HY11

Gross ($m)

Tax ($m)

Net ($m)

Gross ($m)

Tax ($m)

Net ($m)

Statutory Profit After Tax 12.7 54.6

Change in fair value of interest rate swaps 21.3 (6.4) 14.9 6.7 (2.0) 4.7

Change in fair value of property trust portfolio 4.9 - 4.9 2.1 - 2.1

Share of net gain/(loss) from fair value adjustment of equity accounted investments

7.5 (2.0) 5.5 (4.6) - (4.6)

Provision for losses 3.6 (1.1) 2.5 (1.5) - (1.5)

Development impairments 3.4 (1.0) 2.4 - - -

Mackay Turf Farm - - - (2.2) (0.2) (2.4)

Other 0.4 (0.1) 0.3 (0.2) 1.9 1.7

Underlying Profit After Tax 43.1 54.6

24 24

Reconciliation of Underlying Profit to Segment Notes

Underlying Profit ($m)

Share of equity

accounted investments reallocation

($m)

Change in fair value of interest rate swaps

($m)

Change in fair value

of property

trust portfolio

($m)

Share of net gain/(loss) from

equity accounted

investments ($m)

Provision for Losses

($m)

Development Impairment

($m)

Other ($m)

Statutory Segment

Note ($m)

Retirement Operations

9.8 - - - - - - (0.5) 9.3

Retirement Valuation 40.0 - - - - - - - 40.0

Residential Communities and Apartments

10.7 (4.8) - - - - - - 5.8

Commercial and Industrial

4.7 - - (4.9) - - (1.1) - (1.3)

Funds Management and Investments

5.2 (5.4) - - - - - (0.1) (0.3)

Equity Investments - 12.0 (0.9) - (7.5) - (2.4) - 1.4

Corporate (8.0) (1.8) (20.4) - - (3.6) - (1.1) (34.9)

EBITDA 62.5 - (21.3) (4.9) (7.5) (3.6) (3.5) (1.7) 20.0

Depreciation and Amortisation

(1.6) - - - - - - 1.6 -

Interest Expense (7.3) - - - - - - - (7.3)

Income Tax (7.8) - 6.4 - 2.0 1.1 1.0 0.1 2.7

Minority Interest (2.7) - - - - - - 2.7 -

NPAT 43.1 - (14.9) (4.9) (5.5) (2.5) (2.4) 2.7 15.4

25 25

Summary Statutory Balance Sheet

HY12 ($m)

FY11 ($m)

Change

Assets

Cash / receivables / other 113.4 154.5 (27%)

Investment properties (refer slide 27) 2,935.7 2,857.5 3%

Inventories (refer slide 29) 782.5 712.8 10%

Investments (refer slide 29) 287.3 297.9 (4%)

Property, plant and equipment 30.1 30.7 (2%)

Intangibles 2.8 2.8 -

Total Assets 4,151.8 4,056.2 2%

Liabilities

Payables / provisions / deferred revenue / other 181.2 198.4 (9%)

Resident loans 1,336.3 1,314.2 2%

Bank debt (refer slide 41) 753.5 669.9 12%

Other borrowings (refer slide 41) 128.4 132.9 (3%)

Deferred tax 198.0 199.6 (1%)

Hedge liability 31.1 9.8 217%

Total Liabilities 2,628.5 2,524.8 4%

Net Assets 1,523.3 1,531.4 (1%)

NTA per unit $1.22 $1.25 (3%)

26 26

Management Balance Sheet

HY12 ($m)

FY11 ($m)

Change

Assets

Cash 15.3 14.5 6%

Real Estate Assets:

Commercial & Industrial 403.1 429.1 (6%)

Residential Communities and Apartments 734.0 669.9 9%

Retirement (refer slide 28)1 1,504.9 1,465.6 3%

Other Assets (including trade receivables and PP&E) 77.6 83.2 (7%)

Total Assets 2,734.9 2,662.3 3%

Liabilities

Interest – Bearing Liabilities (refer slide 41) 881.9 802.8 10%

Derivative Liabilities 42.9 24.1 78%

Deferred Tax Liabilities 198.0 199.6 (1%)

Other Liabilities (including trade payables, provisions, deferred revenue) 88.8 104.4 (15%)

Total Liabilities 1,211.6 1,130.9 7%

Net Assets 1,523.3 1,531.4 (1%)

1 Net of resident obligations and deferred income

27 27

Investment Property Summary

HY12 ($m)

FY11 ($m)

Change

Retirement

NPV of annuity streams (refer slide 32) 1,207.5 1,165.5 4%

Resident loans 1,336.3 1,314.2 2%

Deferred Income net of Accrued DMF 80.6 79.6 1%

Investment properties under construction – Retirement 44.5 44.1 1%

New units available for first occupancy 44.5 38.5 16%

Buyback units available for occupancy 55.6 57.2 (3%)

Subtotal 2,769.0 2,699.1 3%

Property Trust

Investment properties – FKP Property Trust 140.9 234.4 (40%)

Investment properties under construction / redevelopment - FKP Property Trust 66.5 2.2 2923%

Total Investment Properties (refer slide 38) 207.4 236.6 (12%)

Assets Reclassified as available for sale (36.0) (73.5) 51%

Operating lease receivables and incentives (4.7) (4.7) -

Subtotal 166.7 158.4 5%

Total Investment Properties per Balance Sheet 2,935.7 2,857.5 3%

28 28

Retirement Assets

HY12 ($m)

FY11 ($m)

Change

New units available for first occupancy (Investment Properties) 44.5 38.5 16%

Buyback units available for occupancy (Investment Properties) 55.6 57.2 (3%)

Retirement properties under construction (Investment Properties) 44.5 44.1 1%

Residential aged care facilities and other plant and equipment 15.2 14.9 2%

Bed licences and other intangible assets 2.2 1.9 16%

Subtotal 162.0 156.6 3%

NPV of annuity streams (refer slide 27) 1,207.5 1,165.5 4%

Retirement assets1 1,369.5 1,322.1 4%

Equity accounted investments in RVG and US Senior Living 135.4 143.5 (6%)

Retirement assets including investment in RVG and US Senior Living 1,504.9 1,465.6 3%

1 Includes FPG but excludes RVG and US Senior Living

29 29

Inventories and Investment Summary

HY12 ($m)

FY11 ($m)

Change

Inventories

Residential Communities 461.7 441.5 5%

Residential Apartments 172.4 133.7 29%

Commercial and Industrial 148.4 137.6 8%

Total Inventories 782.5 712.8 10%

HY12 ($m)

FY11 ($m)

Change

Investments

RVG 126.0 135.1 (7%)

Mulpha FKP 112.7 107.9 4%

Port Bouvard 25.5 24.8 3%

US Senior Living 9.4 8.4 12%

FKP Core Plus Funds 8.5 14.1 (40%)

Brookvale 5.2 7.6 (32%)

Total Investments 287.3 297.9 (4%)

30 30

Interest Expense Reconciliation

HY12 ($m)

HY11 ($m)

Interest expense paid 39.6 40.3

Less Capitalised interest

Residential Communities 17.1 16.9

Residential Apartments 6.6 4.7

Commercial and Industrial – Trading 5.5 4.8

Commercial and Industrial – Recurring 2.7 -

Other 0.4 0.6

Total 32.3 27.0

Net finance costs 7.3 13.3

Add Capitalised interest expenses in COGS

Residential Communities 5.2 3.9

Residential Apartments - 2.9

Commercial and Industrial – Trading 0.5 2.1

Other - 1.2

Total 5.7 10.1

Finance costs including capitalised interest expensed in COGS 13.0 23.4

31 31

Appendices





32 32

Key Valuation Assumptions / Outcomes HY12 FY11

Discount rate 12.5% 12.5%

Future property price growth 5% 5%

Current resident tenure (years)

Independent living units

As per ABS life tables less 3 year

X Factor

As per ABS life tables less 3 year

X Factor Serviced apartments

Subsequent resident tenure (years)

Independent living units

9 9

Serviced apartments 4 4

NPV of annuity streams $1,207m $1,165m

Retirement: Investment Property Valuation

As with previous reporting periods, the fair value of the retirement investment property has been determined by an FKP Directors’ valuation

Directors’ valuation at 30 June 2011 was supported by a separate external valuation prepared by Deloitte

The key assumptions that were used in the June Directors’ valuation are unchanged in the current valuation

Deloitte valuation is commissioned annually to review the appropriateness of the Directors’ valuation

Next external valuation review by Deloitte will occur at June 2012

Rather than attempting to forecast and adjust for property cycles, the long term growth is assumed in the retirement portfolio to be a long term average across the property cycle

33 33

Retirement: Investment Property Sensitivities

Retirement Investment Property Annuity Streams ($m)

Long Term Property Price Growth 7% 6% 5% 4% 3%

Net Present Value of Annuity Streams 1,602 1,388 1,207 1,048 912

Subsequent Turnover – ILUs/SAs (years) 7/3 8/4 9/4 10/4 11/5

Net Present Value of Annuity Streams 1,379 1,273 1,207 1,149 1,077

Discount Rate 11.5% 12.0% 12.5% 13.0% 13.5%

Net Present Value of Annuity Streams 1,399 1,297 1,207 1,132 1,061

Assumption adopted for accounting purposes

Sensitivities to the key variables of property price growth, subsequent turnover and discount rate are outlined in the table below

The sensitivities displayed show the impact of movements in one variable assuming all other variables remain consistent with the assumptions adopted for accounting purposes

34 34

Retirement: Discount Rate

FKP’s discount rate of 12.5% has been steady for the last two years, after easing out from a low of 11.5% pre GFC, when comparable market transactions were occurring in the 10.0% - 10.5% discount rate range

FKP’s discount rate is marginally lower than its peers

This needs to be examined in the context of the rate as a measure of risk associated with future cash flows

The maturity of the FKP portfolio lowers the risk across the key cash generating factors relative to the cash flows generated by younger villages that have not attained critical mass in turnover and cash flow

There have been no major retirement village sales during the past six months which would indicate a fundamental change in the discount rates being applied to valuations by acquirers

The small number of sales that have occurred have predominantly been by smaller, financially distressed vendors

Although the risk free rate has fallen, which all other factors being equal, would indicate a drop in the calculated discount rate, anecdotal evidence suggests this has been offset by a lift in the market risk premium

35 35

Retirement: Property Price Growth

The long term future price growth assumption of 5% per annum is supported by the actual long term growth rate historically achieved

Reviewing available price data in the FKP portfolio across a period of more than 30 years, which incorporates numerous property cycles, shows an actual average unit price growth rate in excess of 5% per annum

Like all forms of real estate, price growth depends on key variables such as location, competition and quality

Experience shows most residents move into a village close to their former residence

Therefore, villages in established suburbs of major population centres have a superior catchment to those in city fringe or regional areas

The price of units in retirement villages must be correlated over the long-term with the change in wider residential prices, although because retirement is primarily a “needs driven” purchase, the volatility in price movement tends to be lower

1 By number of units

Regional Areas1 • Abundance of land • Limited catchment area • Limited property price

growth • High competition risk

Capital Cities, Gold & Sunshine Coast • Limited land supply • Large catchment area • Strong property price

growth • Low competition risk

FKP Portfolio Location1

36 36

Retirement: Turnover

Resident turnover is a function of average resident age within the village, which itself is determined by average resident entry age

The average age of residents into FKP villages has been steadily climbing, with a corresponding decrease in the expected tenure of their stay

FKP models existing resident tenure based on ABS actuarial life tables adjusted for an x-factor of 3 years which accounts for the fact that most residents leave the village to move to higher levels of care

FKP then forecasts residents subsequent to these existing residents to stay for an average tenure of 9 years for ILUs and 4 years for SAs

Current average entry age into FKP villages implies a tenure of 8 years using ABS life tables1

Given the demonstrated trend to increasing entry age, by the time these subsequent residents are departing, it may well be the case that resident tenure is lower than the existing 9 and 4 year subsequent turnover assumptions

1 Approximate. Assuming a gender mix of 80% female and 20% male (consistent with current village resident gender mix)

37 37

Appendices





38 38

Summary of Property Trust Assets

Asset State Sector Directors’ valuation

($m) Cap. Rate Occupancy

399 Lonsdale St, Melbourne VIC Office 36.0 8.50% 100%

Browns Plains, Brisbane QLD Bulky goods 27.3 8.00% 100%

Peregian Springs, Sunshine Coast QLD Retail 22.5 8.00% 97%

Browns Plains JV, Brisbane QLD Retail 22.6 9.25% 86%

Browns Plains TC, Brisbane QLD Retail 32.5 9.00% 69%

465 Victoria Avenue, Chatswood1 NSW Office 66.5 8.25% 40%

Total / Weighted Average 207.4 8.46%

1 Under redevelopment

39 39

Appendices





40 40

Distributions

Distribution Policy

Commitment to maximising shareholder return with a distribution of 1.4cps in 1H12 (consistent with 1H11)

Still targeting a total FY12 distribution of 3.3cps, up 10% on FY11

RUP and cash flow weighted to 2H12, when majority of Residential, Retirement and Property Trust settlements are due to occur

Distribution payout ratios impacted by settlement of Aerial in FY13 but will be notionally adjusted as if Aerial settled in FY12

DRP continues to be active for the 31 December 2011 distribution, with a 2.5% discount granted (consistent with FY11)

HY12

($m)

HY11

($m)

Net underlying profit 43.1 54.6

Retirement revaluation (excluding minority interest) (36.1) (35.5)

Tax impact of retirement revaluation 10.8 10.7

Realised underlying profit 17.8 29.8

Adjustments:

Profit from equity accounted investments (10.0) (4.4)

Dividends from equity accounted investments 0.6 14.5

Capitalised interest (32.3) (27.0)

Capitalised interest included in COGS 5.7 10.1 Leasing commissions, tenant incentives and maintenance capital expenditure

(0.3) (1.5)

Amortisation of leasing incentives 0.6 1.4

Tax effect of above adjustments 7.2 (5.3)

Application of prior period tax losses (10.2) 9.0

Actual Funds From Operations (AFFO) (20.8) 26.6

Distribution declared 16.8 16.4

DRP 7.3 8.0

Net distribution 9.5 8.4

Distribution as a % of RUP 94% 55%

Distribution as a % of AFFO (80%) 62%

Net distribution as a % of AFFO (46%) 32%

41 41

Summary of Debt Facilities

Limit ($m)

Drawn ($m)

Undrawn

($m)

Major Facilities 918 805 113 Project Finance 145 63 82 Minor Facilities 23 23 - Available Cash - - 13 Total 1,086 891 2082

Facility Limit ($m) Maturity

Major Facilities:

Wilbow MOF 130 Jun 2013 Retirement Syndicate 275 Mar 2014 Property Trust 68 Jun 2015 Development MOF4 240 Jul 2015 Convertible Bond 125 Jan 2016 Forest Place Group 80 Feb 2017 Total Major Facilities 918

Drawn 805

(%) Drawn 88%

Project Finance:

Aerial Project Finance 95 Dec 2012 LUXE Project Finance 50 Feb 2015 Total Project Finance Facilities 145

Amount Drawn 63

(%) Drawn 43%

Minor Facilities (< $25m):

Currumbin 11 Feb 2013 Mulpha FKP 12 Ongoing Total Minor Facilities 23

Amount Drawn 23

(%) Drawn 100%

HY12 ($m)

FY11 ($m)

Interest bearing liabilities1 882 803 Add: Convertible bond adjustments 10 11 Less: Vendor finance and leases (1) (4)

Total debt facilities drawn 891 810

Less: Mulpha FKP (12) (15) Less: Convertible bond (125) (125)

Gross Bank Debt Drawn 754 670

Available Cash (13) (12) Net Bank Debt Drawn 737 658

Net Bank Debt Drawn

Summary of Undrawn Debt Facilities3

Summary of Debt Facilities1,3

1 Excludes Bank Guarantees 2 Undrawn facilities are dependant upon having sufficient security 3 Shown post refinance of Property Trust, Development MOF facilities and Forest Place Group and new LUXE project finance facility 4 Facility limit amortisation of $20m in November 2012 and November 2013

42 42

All Key Covenants Met

Covenant HY12 Required Status

Development MOF / Retirement

(Total Liabilities - Resident Obligations - Deferred Tax Liability) / (Total Tangible Assets - Resident Obligations - Deferred Tax Liability)

Gearing 41.8% <55% ✔

(Underlying EBITDA - Net non-cash component of retirement revaluation) / Net Finance Costs - Loan Establishment Fees1

Interest Cover 4.2x >2.0x ✔

The amount by which total tangible assets exceeds total liabilities2 NTA $1.5b >$1.0b ✔

Retirement Syndicate

Cash receipts (as defined) / Net Finance Costs - Loan Establishment Fees

Interest Cover 1.8x >1.75x ✔

Loan amount outstanding / Mortgaged Property Valuation3 LVR 44.3% 50% ✔

Property Trust

Net Rent / Interest Expense Interest Cover 1.9x >1.5x ✔

Loan amount outstanding / Mortgaged Property Valuation LVR 50.3% 60% ✔

1 ICR as measured under new definition post refinancing for 31 December 2011 of 2.8x 2 NTA required to be $1.25b post refinance 3 External valuations for mortgage security purposes are conducted on a rolling 2 year basis with the next valuation scheduled for August 2013

43 43

Interest Rates

Drawn Debt Type ($m) (%) Avg Base Rate Weighted Avg

Maturity

Floating Rate Debt 188 21% 4.5%1 N/A

Fixed Rate Debt 703 79% 5.4% 3.4

Total / Weighted Average 891 100% 5.3% N/A

Fixed Rate Debt Profile

Base Funding Cost Summary

Jun12 Jun13 Jun14 Jun15 Jun16

Face Value of Fixed Rate Debt ($m) 575 640 590 550 300

Weighted Average Interest Rate on Fixed Rate Debt 5.6% 5.5% 5.5% 5.6% 5.9%

Weighted Average Time to Maturity (Years) 3.5 2.4 1.6 0.7 0.2

1 Based on BBSY as at 30 December 2011

44 44

Current Debt Maturity

Next material debt maturity will be Wilbow MOF in June 2013.

Note: Development MOF maturity shown post amortisation of facility limit of $20m in November 2012 and $20m in November 2013

45 45

Current Interest Rate Hedging Profile

555m558m

691m 703m

575m

640m640m

590m 590m

550m 550m

425m

300m

5.00%

5.25%

5.50%

5.75%

6.00%

6.25%

6.50%

6.75%

7.00%

--

100m

200m

300m

400m

500m

600m

700m

800m

Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16

Fixed RateFixed Debt

Senior Bank Debt Convertible Bond Project Finance Debt Weighted Av Fixed Rate

46 46

Gearing History

Gearing remains well under the target limit of 35%

47 47

Disclaimer The content of this presentation is for general information only. Information in this presentation including, without limitat ion, any forward-looking statements or opinions (Information) may be subject to change without notice. To the maximum extent permitted by law, FKP Pr operty Group, its officers and employees do not make any representation or warranty, express or implied, as to the currency, accuracy, reliabil ity or completeness of the Information and disclaim all responsibility and liability for the Information (including, without limitation, liabilit y for negligence). The information contained in this presentation should not be considered to be comprehensive or to comprise all the informatio n which a security holder or potential investor in FKP may require in order to determine whether to deal in FKP securities. This presentation d oes not take into account the financial situation, investment objectives and particular needs of any particular person. This presentation contains “forward-looking statements” including indications of, and guidance on, future earnings, financial position and performance. Such forward looking statements are not guarantees of future performance and involve known and unknown risks, u ncertainties and other factors, many of which are beyond the control of FKP and its officers and employees, that may cause actual results to differ materially from those predicted or implied by any forward-looking statements. You should not place undue reliance on these forward-looking statements. There can be no assurance that actual outcomes will not differ materially from these forward-looking statements. All dollar values are in Australian dollars (A$) unless otherwise stated.

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Level 5, 120 Edward Street Brisbane QLD 4000

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www.fkp.com.au

fkp property group half year results presentation · rvg new zealand 3,136 . 247 . 3,383 . total ....

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