ING OFFICE FUND. Half Year Results Presentation - 31 December February 2006 CREATING VALUE PAGE 1

Transcription

1 ING OFFICE FUND Half Year Results Presentation - 31 December February 2006 PAGE 1

2 PRESENTATION Speakers Valentino Tanfara Chief Executive Officer, ING Office Fund Ben Brayshaw Assistant Fund Manager, ING Office Fund Marc Deluca Asset Management & Acquisitions, Washington DC Deke Schultze Asset Management & Acquisitions, Boston Indraneel Karlekar Global Research and Strategy, New York PAGE 2

3 RESULTS SUMMARY Distributable income* $54.0m EPU* of 5.28 cpu v s 5.64 cpu for PCP (non recurring income items: 0.5cpu) Distributions 1% to 5.15 cpu Undistributed income to $9.8m NTA 11 cents or 9.4% to $1.28 * excluding AIFRS related entries PAGE 3

4 RESULTS SUMMARY Performed IOF UBS Comm % 12% 13.2% 12.2% 11.2% 10.7% 10% 8% 6% 4% 2% 7.5% 6.0% 7.7% 4.8% 0% 6 months 12 months 3 years* 5 years* Best performing listed office trust for the period Out performance over short to medium term with peer group Source: UBS monthly 31/12/05 * annual compound ave. PAGE 4

5 RESULTS SUMMARY Asset managed and leased Over 44,000sqm leased securing $14.6 million of annual income New 10 year lease to MLC at Campus MLC, North Sydney Leased 4,880sqm of space at 111 Pacific Hwy, North Sydney to Transfield Renewed 7,251sqm in Brisbane setting new rental benchmarks Tenant retention of 87% for the period Occupancy 99%, WALE 5.3 years Terms agreed on a further 10,000sqm PAGE 5

6 RESULTS SUMMARY Acquired Homer Building, Washington DC (further 30%) Waltham Woods Corporate Center, Boston Metro (50%) Waltham Woods Corporate Centre, Boston Metro Homer Building, Washington DC Introduced Boston metro to portfolio 5 th largest US office market Weighting to key US office markets to 31% PAGE 6

7 RESULTS SUMMARY Revalued Valuation Cap rate Previous Current Previous Current MLC Complex Brisbane $92.0m $133.0m 8.80% 8.10% Australian Gov. Centre - Brisbane $147.4m $225.0m 8.80% 7.70% Times Square - Canberra $52.0m $48.5m 9.10% 8.50% 412 St Kilda Road Melbourne $43.0m $38.0m 8.50% 8.25% 990 Whitehorse Road - Melbourne $52.0m $59.0m 10.0% 7.75% Revaluation increment of $104 million on book values Weighted ave. portfolio capitalisation rate - 7.3% PAGE 7

8 RESULTS SUMMARY Distributable income (excludes AIFRS entries) Net property income* Net interest RE fee Other costs Distributable income EPU (cents) Dec 05 ($m) (20.66) (4.06) (0.68) Dec 04 ($m) (16.69) (3.92) (0.69) DPU (cents) Dec 04 earnings impacted by $3.4m ATO payment and over-renting at Penrith & Cheltenham Distributions reflect sustainable earnings * excludes minority interests PAGE 8

9 RESULTS SUMMARY AIFRS reconciliation Dec 05 $ m Net profit attributable to members of IOF $ Adjusted for: Net gain from revaluations ($99.40) (9.72) Amortisation of fitout incentives $ Straight lining of rents ($3.70) (0.36) Unrealised (gain)loss on revaluation of derivatives ($1.53) (0.15) Deferred tax expense $ Distributable income $ Transfer from units relating to pre alotment period $0.59 Distributable income brought forward $8.53 Distributions paid and payable ($53.28) Dec 05 EPU Distributable income carried forward $ PAGE 9

10 RESULT SUMMARY Key financials Total assets (look through) Gearing (look through) Undistributed income NTA (per unit) Units on issue No. of unitholders Avg lease duration Dec 05 $2.41b 39.7% $9.8m $1.28 1,066.4m 30, yrs Dec 04 $1.85b 36.8% $7.4m $ m 31, yrs PAGE 10

11 RESULTS SUMMARY Earnings per unit 6.0 Cents per unit * Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 * impacted by $3.4m ATO payment and over-renting at Penrith and Cheltenham PAGE 11

12 RESULTS SUMMARY Major leasing Tenant Property Area sqm Face rent $sqm MLC Campus MLC, North Sydney 26,536 $320 n Transfield Services 111 Pacific Highway, North Sydney 4,880 $360 n Q Build 295 Ann St, Brisbane 3,026 $380 g Depart. Main Roads 295 Ann St, Brisbane 2,445 $380 g* East Coast College 295 Ann St, Brisbane 1,715 $380 g Vic Work Cover 628 Bourke St, Melbourne 2,720 $205 n New 10-yr lease to MLC eliminates largest expiry in next 2.5 years Half of the vacant space at 111 Pacific Hwy leased * assumed rent based on outcome of determination PAGE 12

13 PORTFOLIO SUMMARY Dallas 3% Boston 4% New York 8% Washington DC 16% Perth 2% Melbourne 13% Brisbane 15% Sydney 35% Canberra 4% PAGE 13

14 PORTFOLIO SUMMARY Lease expiry profile 50% 45% 40% 35% 30% 25% 20% 15% 10% 11% 10% 5% 5% 1% 0% Vacant FY06 FY07 Manageable lease expiry in medium term FY08 FY09 13% 12% FY10 FY10+ 48% Terms agreed or negotiations on a number of FY07 FY09 expires PAGE 14

15 PORTFOLIO SUMMARY LEASING FOCUS Tenant Property Vacant FY06 FY07 FY08 Vacant 111 Pacific Highway 1% White & Case Homer Building 2% ATO 40 Cameron Ave 2% AFP Royal Mint Centre 1% ATO Terrica Place 2% Zweig Advisors 900 Third Ave 1% Spear, Leeds & Kellogg 900 Third Ave 1% GSA Homer Building 1% DEST Mort St 3% Kroll Associates 900 Third Ave 1% Jenner & Block Homer Building 2% Major expiries 3% 8% 6% Total expiries 5% 10% 11% PAGE 15

16 PORTFOLIO SUMMARY Repositioning of 111 Pacific Highway, North Sydney Level Level 3 - retail Level 3 - retail Total Vacant signage Business Objects Australia Pty Ltd Vacant (253 sqm) QAS HCL Nextgen. NET Pty Ltd Vacant (393 sqm) Vacant (975sqm) Dyno Nobel Asia Pacific Limited Vacant (260 sqm) Loop Technology Cement Australia Pty Ltd Vacant (370sqm) HT.com.au National Insurance Brokers Intel Australia Unimin Australia Limited Vacant (971 sqm) Vacant (972 sqm) Transfield Services Transfield Services Transfield Services Transfield Services Transfield Services Vacant (975 sqm) Vacant (993 sqm) Knudsen Travel Pty Ltd Ergoport Pty Limited Dr Dennis E L Teoh Bank of QLD Adecco Newsagent Convenience Store CJ's Coffee Shop City Software Pty Ltd Just Cuts Value-added strategy to extract cost efficiencies, upgrade services & strengthen covenants Lease to Transfield Services for 4,880sqm within 2 months of vacancy occurring PAGE 16

17 PORTFOLIO SUMMARY Rent review type by income FY06 FY07 16% Market 33% Fixed 23% Market 45% Fixed 1% CPI 7% CPI 50% No Reviews 25% No Reviews Fixed ave. increase = 4.4% CPI ave. increase = 2.9% Fixed ave. increase = 4.1% CPI ave. increase = 2.9% Note: Market reviews incl. expiries PAGE 17

18 PORTFOLIO SUMMARY Percentage Debt Hedged Interest rate hedging 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% A$ US$ Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 % of Debt Hedged (LHS) Hedged Rate (RHS) 7.0% 6.5% 6.0% 5.5% 5.0% Average Hedged Cost of Funds Percentage Debt Hedged * excludes magins Note: US$ hedging profile excludes hedged debt in equity accounted investment at 900 Third Avenue. 100% 90% 80% 70% 60% 50% 40% 30%.3 20% 10% 0% Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 % of Debt Hedged (LHS) Hedged Rate (RHS) Hedged for ave %* Hedged for ave %* US$ maturity profile to be extended via refinancing Homer Building (Jun 07) CMBS refinance Feb % 4.5% 4.0% 3.5% 3.0% Average Hedged Cost of Funds PAGE 18

19 PORTFOLIO SUMMARY Currency hedging Income hedging US$ Dec 05 to Jun 09 Jun 10 Avg forward FX rate 0.67c 0.70c % of forecast revenue hedged 100% 100% PAGE 19

20 OFFICE MARKETS PAGE 20

21 OFFICE MARKETS - GLOBAL US treasury yield curves Jul-05 Oct-05 Jan % 4.75% 4.50% 4.25% 4.00% 3.75% 3.50% 3.25% 3.00% Fed Funds rate 1-Yr bond 2-Yr bond 3-Yr bond 5-Yr bond 7-Yr bond 10-Yr bond Yield curve inversion to be viewed in context of Fed policy and real interest rates Risks to US growth from housing market and fiscal position Source: US Federal reserve PAGE 21

22 OFFICE MARKETS - GLOBAL After cost leveraged yields 18% 15% 12% CTRL. EUR WEST EUR 9% CAN 6% AUS US 3% UK 0% JPN Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Globalisation continues to drive convergence in leveraged yields Over-laying respective inflationary expectations shows similar ROE Source: ING Real Estate, historical data from Westpac, Real Capital Analytics, NCREIF, PMA, Colliers International & Jones Lang LaSalle Note: Leveraged yields use 50% debt with 5-Yr swap rate incl. margins PAGE 22

23 OFFICE MARKETS - GLOBAL Forecast rental growth overlaid on after cost leveraged yields Leveraged yield 25% Leveraged yield plus leveraged forecast 3-yr rental grow th p.a. 23% 20% 18% 15% 13% 10% 4.8% 5.2% 5.5% 5.6% 6.1% 6.6% 7.1% 7.6% 7.6% 7.6% 7.6% 8% 5% 3% 0% Japan UK USA Australia Rental cycles vary with stage of economic ascendancy Markets with real rental growth prospects stand to deliver higher ROE Source: ING Real Estate, historical data from Westpac, Real Capital Analytics, NCREIF, PMA, Colliers International & Jones Lang LaSalle Note: Leveraged yields use 50% debt with 5-Yr swap rate incl. margins Spain France New Zealand Central Europe Belgium Germany Holland PAGE 23

24 OFFICE MARKETS - AUSTRALIA Office REIT initial WACC verus after cost property yields 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% WACC Property Yield 0.0% SING JPN US CAN NZ AUS Office REITs globally can compete for acquisitions in their local markets (excl. Australia) Yield disconnect in Australian direct office market and listed market Source: ING Real Estate, data from Merrill Lynch, UBS and CIBC World Markets Note: WACC estimates assume 50% gearing, ave. distribution yield, 5-Yr swap plus margins, 0.5% MER PAGE 24

25 OFFICE MARKETS - AUSTRALIA Direct versus indirect investment Direct Property yield Acquisition costs Fees Leverage benefit/(cost) 40% LVR After cost leveraged yield 7.0% (0.4%) (0.5%) (0.1%) 6.0% IOF s current annualised yield is 7.6%* Backsolving implies unleveraged property yield for IOF is 8.0% Source: ING Real Estate * Based on cum-adj. price at 21/02/06 PAGE 25

26 OFFICE MARKETS - AUSTRALIA White collar employment growth by CBD market 8% 7% 6% 5% 4% 3% 2% 1% 0% -1% -2% Sydney North Syd. Melbourne Brisbane Canberra CY01 CY02 CY03 CY04 CY05 Perth Robust employment growth now evident across major office markets Improved dynamics driven by migration patterns, commodity prices & stable housing market Source: Access Economics PAGE 26

27 OFFICE MARKETS - AUSTRALIA Sydney CBD leasing velocity for the 6 month period Darling Park 3 Hilton Hotel 345 George Street 135 King Street 321 Kent Street King Street Warf Civic Tower 1 Margaret Street 400 George Street 259 George Street Angel Place 60 Margaret Street Australia Square Grosvenor Place 1 O'Connell Street 56 Pitt Street Increased leasing momentum across A-grade space market Major leasing in advance of expiry dates to tighten incentive levels Source: photo from DTZ Australia PAGE 27

28 OFFICE MARKETS - AUSTRALIA 3 year rental growth forecast by CBD market 8% 7.0% Face rental grow th p.a. Effective rental grow th p.a. 6% 4% 2% 4.7% 1.8% 1.0% 3.5% 2.5% 5.3% 4.6% 2.0% 4.3% 3.0% 3.9% 3.6% 0% -2% -4% -3.9% -6% Sydney North Sydney Melbourne Brisbane Canberra Perth Ave. All office markets showing positive rental growth as broad based job growth emerges Declining tenant incentives in Sydney to result in stronger effective rental growth Source: ING Real Estate PAGE 28

29 OFFICE MARKETS - EUROPE After cost yields and 3 year forecast rental growth Country Major markets After cost yields* Rental growth forecast 3-yr *, ** France Paris, Lyon 4.75% % 5.5% Netherlands The Hague, Amsterdam 5.50% % 2.0% Spain Madrid, Barcelona 4.50% % 6.5% Italy Milan, Rome 4.75% % 0.0% Belgium Brussels, Antwerp 5.50% % 2.0% Germany Frankfurt, Berlin 5.50% % 2.0% Central Europe Prague, Warsaw, Budapest 5.50% % 3.0% Source: * ING Real Estate, ** PMA PAGE 29

30 OFFICE MARKETS CENTRAL EUROPE Overview Highly liberalised and dynamic economies growing at world growth ave. Population (2004) GDP growth 2006 GDP per capita Foreign direct investment ( ) Main office market & vacancy rate Poland 38.2 mill 4.4% $12,876 $57.4 bill Warsaw 8.2% Estonia Russia Abundant supply of well educated, technically skilled multilingual workers Low company taxes complement low wages, attracting material foreign investment Czech Republic 10.2 mill 4.0% $19,311 $41.7billl Prague 12.9% Latvia Lithuania Belarus Germany Luxembourg Slovakia Ukraine Austria Italy Slovenia Romania Western style accommodation at Central European rents Source: Business Week, Jones Lang LaSalle Q Note: map adapted from AFR. Vacancy rate for Prime office property. Hungary 10.1mill 3.9% $16,596 $37.3 bill Budapest 10.2% 3 PAGE 30

31 OFFICE MARKETS Summary Effective rental growth in Australian office markets gaining in ascendancy Comparison of direct versus indirect pricing in Australian office market highlights disconnect Globalisation continues to drive convergence in leveraged yields Global office markets with real rental growth prospects stand to deliver higher ROE Varying economic growth and low vacancy producing differing rental growth across Europe Central European markets also offer attractive opportunities PAGE 31

32 OUTLOOK AND STRATEGY Summary Stabilised EPU exceeds DPU Lease expires manageable with continued momentum Portfolio well positioned to benefit from improving office markets Commitment to drive earnings; - Active asset management / retention / leasing - Value add opportunities - Further offshore expansion Deliver distribution growth PAGE 32

33 ING OFFICE FUND Thank you and questions A copy of this presentation is available at Disclaimer: This presentation has been prepared by ING Management Limited, the Responsible Entity of the ING Office Fund. It is intended to provide a summary of the Fund's results for the six month period to 31 December ING Management Limited believes the information to be correct, however makes no warranty as to the accuracy, reliability or completeness of the information. PAGE 33