For personal use only

Transcription

1 Investa office fund Annual Review 30 June 2012

2 INVESTA OFFICE FUND ANNUAL REVIEW JUNE 2012 For personal use only What s inside Annual review Highlights IOF Results Letter from the Chairman Letter from the Fund Manager About the Manager Strategy IOF Portfolio Market Overview Case Studies People Stakeholder Engagement Performance Overview Investor Relations Glossary Directory Investa office fund Annual Report 30 June 2012 review 30 June 2012 Investa office fund Property Portfolio 30 June 2012 This Annual Review is one of a suite of related documents. For more information, or to download any of the above documents, visit COVER: 242 EXHIBITION STREET, MELBOURNE property Annual Review financials Investa office fund ANNUAL REPORT 30 JUNE 2012 Investa office fund investa.com.au/iof

3 ANNUAL REVIEW IOF 01 Investa Office Fund (ASX code: IOF) is an ASX-listed real estate investment trust (A-REIT) and is included in the S&P/ASX100 index. The Fund is a leading owner of investment grade office buildings and receives rental income from a tenant register comprising predominantly Government and blue chip tenants. IOF has total assets under management of $2.5 billion, with investments located in core CBD markets throughout Australia and select offshore markets in Europe. IOF s aim is to reposition the portfolio to an Australian-only focus. $ 2.5bn Assets under management 19 1 Properties Tenants 477,533 3 Total lettable area (sqm) 1. Excluding 14.2% ownership of Dutch Office Fund 2. Excludes Dutch Office Fund 3. IOF Ownership

4 INVESTA OFFICE FUND ANNUAL REVIEW JUNE was a transformational year for IOF. The Fund is well progressed in delivering its stated aim of being 100% Australian with an appropriately diversified portfolio of quality assets that will deliver high risk-adjusted returns. The breadth, depth and experience of the Investa team has enabled IOF to deliver a strong set of results. TOBY PHELPS, FUND MANAGER HIGHLIGHTS FY July 2011 Change in Responsible Entity with appointment of Investa Listed Funds Management Limited and fee change, based on market capitalisation approved 15 AUGUST 2011 Announcement of on-market buyback of up to 10% of issued capital and debt refinance of $552m 25 AUGUST 2011 Announcement of FY2011 financial results 2 DECEMBER 2011 Sale of interests in Homer Building, Washington, USA 5 DECEMBER 2011 Sale of interests in Computer Associates Building, Texas, USA 6 DECEMBER 2011 Unitholder meeting: Approval of modernisation of AJO Fund and PCP Trust constitutions and approval of frequency of distributions changed to half yearly 15 DECEMBER 2011 Sale of interests in NVH Building, Paris, France 16 DECEMBER 2011 Completion of 10% on-market buyback at average price of $0.608 per unit ($2.43 post 4:1 unit consolidation) and circa 17% discount to 30 June 2011 NTA per unit

5 ANNUAL REVIEW c 17.5 c $ % Operating Earnings per Unit Distributions per unit Net Tangible Assets per unit (NTA) Gearing (Look-through) 96 % 79 % Portfolio occupancy Portfolio tenant retention Star NABERS Energy rating (Australian portfolio weighted average) Star NABERS Water rating (Australian portfolio weighted average) 19 DECEMBER 2011 Announcement of new Fund Manager, Toby Phelps, to commence February FEBRUARY 2012 Sale of interests in 900 Third Ave, New York, USA the final US asset 23 FEBRUARY 2012 Announcement of FY2012 half year financial results and proposed acquisition of interests in 126 Phillip Street, Sydney and 242 Exhibition Street, Melbourne 27 MARCH 2012 Unitholder meeting: 92% Unitholder approval of acquisition of 25% interest in 126 Phillip Street and 50% interest in 242 Exhibition Street 28 MARCH 2012 Announcement of 4:1 unit consolidation 24 APRIL 2012 Completion of unit consolidation and announcement of sale facility for small Unitholders 5 JUNE 2012 Completion of Small Unitholding Sale Facility and Small Parcel Sale Facility resulting in the reduction of the Unitholder base from 21,450 to circa 17,700 Unitholders

6 INVESTA OFFICE FUND ANNUAL REVIEW JUNE IOF Results FY2012 performance 126 phillip st, SYDNEY bond st, SYDNEY 388 george st, SYDNEY 347 kent st, SYDNEY 151 clarence ST, sydney miller st, NORTH sydney 111 pacific hwy, NORTH sydney 239 george st, BRISBANE 15 adelaide st, BRISBANE FINANCIAL POSITION operating earnings RECONCILIATION FY2012 ($m) Cents per unit FY2011 ($m) Cents per unit 1 Statutory profit attributable to Unitholders Adjusted for: Net (gain)/loss on change in fair value in: Investments (82.0) (12.9) (36.0) (5.3) Derivatives (9.3) (1.4) Transfer foreign currency translation reserve to profit and loss Net (gain)/loss on disposal of investments (6.1) (1.0) Net foreign exchange gain (19.9) (3.1) (8.7) (1.2) Other (primarily straight-lining and tax) (19.4) (3.0) Operating Earnings Distributions ² Payout ratio (% of Operating Earnings) 30 June June 2011 Total Assets $2,502.6m $2,504.8m Total Liabilities $575.8m $488.0m Gearing (statutory) 18.3% 14.6% Gearing (look-through) 21.9% 20.5% Number of units on issue 614.1m 682.3m 1 Net Tangible Assets per unit (NTA) $3.14 $ Market Capitalisation $1,664m $1,760m 87% 78% > Net Profit reduced due to the sale of US operations and the US foreign currency translation reserve, already provided for in the statement of Financial Position, being transferred to the Income Statement > Operating Earnings impacted by weak offshore asset performance and subsequent sales > Operating Earnings per Unit boosted by 10% buyback > Payments to Unitholders increased by special distribution of 1.9c per unit following sale of offshore assets 1. Restated for 4:1 unit consolidation 2. Includes 1.9c special distribution

7 ANNUAL REVIEW creek st, BRISBANE 295 ANN st, BRISBANE 232 adelaide st, BRISBANE 242 exhibition ST, Melbourne 628 bourke st, MELBOURNE 383 la TROBE ST, MELBOURNE 800 TOORAK RD, MELBOURNE 836 WELLINGTON ST, PERTH MORT ST, CANBERRA AUSTRALIAN PORTFOLIO 30 June June 2011 Net Property Income (NPI) $130.3m $119.9m Like-for-like NPI growth 1.4% 3.4% Leased 80,368sqm 1 48,547sqm Tenant retention 2 76% 62% Occupancy (by income) 98% 95% Weighted average Lease expiry (WALE) 5.1yrs 4.8yrs Face rent renewal growth 3 6.7% 4.7% Effective rent renewal growth % (6.1%) Average passing face rent $527psqm $495psqm Number of investments > Increase in NPI generated through acquisitions and leasing of Bond Street, Sydney, following a comprehensive refurbishment in 2011 > Like-for-like NPI growth impacted by expiry of pre-gfc leases in Brisbane, renewed at lower Effective Rents > Strong leasing results driven by integrated management approach, driving 76% tenant retention and sector leading occupancy of 98% > Excellent effective rent renewal growth of 16.3% following particularly strong growth at 105 Miller Street, North Sydney > Acquisition of high quality Australian assets: 126 Phillip Street, Sydney and 242 Exhibition Street, Melbourne IOF is one of the few REITs to deliver a meaningful increase in NTA for the year, which was mainly the result of the team s focus on leasing vacant space and repositioning assets to drive growth in valuations. BEN BRAYSHAW, PORTFOLIO MANAGER 1. IOF ownership component 71,728sqm 2. Percentage of tenants renewed by rental income (based on expiries) 3. Face rent renewal growth refers to the growth in headline rents i.e. rent before any incentives; Effective rent renewal growth refers to rental growth after amortising the incentive over the life of the lease

8 INVESTA OFFICE FUND ANNUAL REVIEW JUNE Letter from the Chairman Dear Unitholder On behalf of the Board of the Responsible Entity of IOF, it is my pleasure to present the 2012 Annual Report. In a year of continued uncertainty in the global economic environment, this has been a successful year for the Fund. Pleasing results; strategy on-track IOF s financial and portfolio results for FY2012 demonstrate strong progress against the Fund s strategic objective of positioning IOF as Australia s pre-eminent CBD office fund. IOF s Board and management have worked hard to reposition the portfolio, stabilise earnings and enhance Unitholder value. While global economic conditions remain challenging and instability in Europe continues, Australia s economy has to date been resilient, with low unemployment and ongoing Gross Domestic Product growth. It is our belief that, despite these macroeconomic and political uncertainties, Australia s office market is sound and the Fund is well positioned for continued favourable performance. Declining Australian interest rates have improved the attractiveness of yield driven investments, resulting in a return to favour of real estate as a defensive asset class. The office sector has outperformed all other property classes 1 in Australia and we believe that favourable market fundamentals will continue. These solid market fundamentals are in contrast to many offshore markets, particularly the US and Europe, reinforcing the Fund s strategy of selling its offshore assets and re-investing in high quality Australian CBD office assets. Buyback and Unit consolidation In December 2011, the 10% unit buyback was completed at an average purchase price of $ This was a 17% discount to the 30 June 2011 NTA per unit, and generated a 6.5% increase in Operating Earnings per Unit in FY2012. In April, a consolidation of the Fund s units was finalised, based on four pre-consolidated stapled units for one consolidated stapled unit. A Small Unitholding Sale Facility and a Small Parcel Sale Facility were also established in April and closed in June This further rationalised the register base and reduced administrative costs. We believe that the consolidation of IOF units will help reduce unit price volatility and improve market perception of the Fund, as a higher absolute unit price broadens the appeal of IOF to a greater number of investors, while opening up investment to certain institutional investors, who are restricted from investing in stocks priced below $1.00. The unit consolidation also better aligns the number of IOF units on issue with IOF s peers in the A-REIT sector. Good governance a high priority In July 2011, Unitholders approved the appointment of Investa Listed Funds Management Limited as the new Responsible Entity to manage IOF. At the time, Unitholders also adopted a new Responsible Entity fee fixed at $8.6 million per annum from 1 July 2011 to 30 June 2012, thereafter set at 0.55% per annum of IOF s average market capitalisation. 1. Investment Property Databank Investment Digest June 2012; excludes Australia other 2. After 4:1 unit consolidation

9 ANNUAL REVIEW 07 Deborah Page, Chairman A Responsible Entity fee based on market capitalisation, rather than the value of assets, is a market leading initiative, providing better alignment of interests between the manager and Unitholders. The fee covers all remuneration, resource and administration expenses, and is one of the lowest in the sector. The Board is dedicated to IOF only. It has no responsibility for any other Investa managed investments or funds. Unlike other externally managed REITS, the sole shareholder of the Responsible Entity has committed that: > The Board comprises a majority Independent Directors with an Independent Chairman; and > Independent Directors serve for a three year term, with appointments ratified at the annual Unitholder meeting. This year, Peter Dodd will require ratification as an Independent director at the annual Unitholder meeting, which is to be held on the 25th October In December 2011, Unitholders approved changes proposed by the Manager to the constitutions of Armstrong Jones Office Fund (AJO Fund) and Prime Credit Property Trust (PCP Trust), being the stapled entities that comprise the Fund, which were out-dated and inconsistent with each other. The changes simplify, modernise and streamline the constitutions and incorporate three key modifications: a change to the distribution frequency from quarterly to half-yearly; an amendment to the issue price allowed for placements; and the ability to re-allocate capital between AJO Fund and PCP Trust, providing greater flexibility to move capital as and when required. Changes to the distribution frequency result in interest and administrative savings for the Fund. This, in conjunction with the other changes, is another example of how the Board and management are improving governance and managing the Fund more efficiently to improve performance over time. Distributions and outlook In June 2012, IOF announced a distribution of 9.7 cents per unit for the half year to 30 June 2012, comprising an ordinary distribution of 7.8 cents per unit, in line with previous guidance, and a special distribution of 1.9 cents per unit as a consequence of the US asset divestments. This brought the total distribution for FY2012 to 17.5 cents per unit. Subject to prevailing market conditions, Earnings per Unit in FY2013 are expected to increase by 9% to 21.9 cents 3 with the distribution per unit expected to be 17.5 cents. 4 Heading into 2013, the Board is confident that the Australian portfolio is well positioned to deliver solid earnings. The focus of the Board and management will remain on the divestment of the remaining European assets, prudent capital and debt management and the acquisition of high quality Australian assets. We will continue to report transparently and consistently, maintaining the highest standards of corporate governance. On behalf of the Board, I would like to thank you for your support, and to thank the Investa management and staff for their hard work. I look forward to continuing to serve you in my capacity as Chairman and reporting on our progress in Yours sincerely, Deborah Page AM Chairman, Investa Listed Funds Management Limited 3. Factors in the 31 August 2012 settlement of 66 St Georges Terrace, Perth and assumes no further acquisitions or disposals. 4. Based on a payout ratio of 80% of Operating Earnings

10 INVESTA OFFICE FUND ANNUAL REVIEW JUNE Letter from the Fund Manager Dear Unitholder This is the first Annual Report for IOF which covers a full 12 month period under Investa s management and we are pleased to report on what was a strong year of repositioning and de-risking the Fund. For the year ended 30 June 2012, the Fund achieved a net profit of $101.9 million, down from $143.9 million in the previous year, due to the material impact of the sale of the US portfolio during the year. The Fund s Operating Earnings, the measure management uses to gauge the ongoing performance of the Fund, was $128.1 million compared to $135.6 million for the previous year, due to weaker performance of the offshore portfolio and the sale of $520 million of offshore assets. However, Operating Earnings on a per unit basis, was up from cents to 20.1 cents following the successful execution of a 10% unit buyback. Total distributions for the year were 17.5 cents per unit, including a special distribution of 1.9 cents per unit, and were in line with guidance. Unitholders have also benefited from strong unit price appreciation over the period, with the unit price increasing from $2.52 to $2.71 1, a Total Unitholder Return (including distributions) of 12.5% 2. Year of transformation In keeping with the Fund s stated objectives, this has been a year of transformation with the prime focus on portfolio repositioning towards becoming 100% Australian, achieving optimal returns on assets through improved efficiencies, improved capital management and leadership in governance, which will benefit all Unitholders. The Fund successfully completed the sale of approximately $520 million of property assets in the US and Europe, at an overall premium of 9.7% to the 30 June 2011 book values. The sale of the remaining European assets is a key focus however, considering the economic environment in Europe, could take some time. The majority of the offshore sale proceeds were used to acquire interests in 126 Phillip Street, Sydney, and 242 Exhibition Street, Melbourne, substantially improving the overall quality and risk-adjusted returns of the Australian portfolio. The portfolio is now fully integrated into Investa s market leading, full service management platform and the benefits are already evident. Through consolidation of service contracts and economies of scale provided by the platform, significant operational efficiencies have been achieved, reducing the total occupancy cost to our tenants and increasing the relative attractiveness of our assets. Key indicators improve IOF s Australian portfolio saw a significant level of leasing activity over the year, with 17% of the portfolio, or over 80,000sqm, re-leased. The majority of this leasing addressed near to mid-term major lease expiries and delivered an average increase of 6.7% on previous rents. This increased the portfolio s occupancy to 98% and Weighted Average Lease Expiry to 5.1 years, providing greater certainty of revenue to the Fund. 1. $2.52 as at 30 June 2011 restated for 4:1 unit consolidation: $2.71 as at 30 June Source: Bloomberg; assumes distribution were reinvested in IOF

11 ANNUAL REVIEW 09 Toby Phelps, Fund Manager During the year, there was a material increase in the Fund s NTA from $ per unit at 30 June 2011 to $3.14 per unit at 30 June This improvement reflected the impact of new leasing and higher market rents, notably for Sydney and North Sydney, along with the premium achieved for offshore sales and completion of the unit buyback. In August 2011, the Fund entered into a new three year corporate debt facility, replacing the existing facility which was due to expire in June The Fund s balance sheet is strong with look-through gearing (debt to total assets) at 21.9% as at 30 June 2012, well below its targeted range of 25% to 35%. Following the announced acquisition of 66 St George s Terrace in Perth and payment of the August distribution, gearing will rise to approximately 26%, still at the bottom end of our target range and providing liquidity and capacity to continue to grow the portfolio. Environmental performance continues to be a focus for management and we have achieved significant energy use improvements since joining the Investa platform. As a result of this focus we have increased our portfolio weighted average NABERS Energy rating by 0.7 Stars to 4.0 Stars and reduced electricity consumption by 12%, resulting in a reduction in greenhouse gas emissions intensity of 13%. These initiatives reduce building operational costs and subsequently improve asset values and align the performance of our buildings to what tenants increasingly expect. Key Strategy and Outlook The Fund s overarching strategy is to be the pre-eminent Australian CBD office fund. Our focus for the coming year will centre on continuing to transition the portfolio to a 100% Australian focus; optimising portfolio performance through active lease management; maintaining a market leading position in governance and transparency; and optimising capital management through diversifying debt funding and extending the maturity profile. The recently announced BBB+ credit rating by Standard & Poors facilitates the Fund s access to the global capital markets to allow us to execute on this strategic initiative. On behalf of the management team, I would like to thank Unitholders for your support over We look forward to your continued support throughout Yours sincerely, Toby Phelps Fund Manager 1. After adjusting for 4:1 unit consolidation

12 INVESTA OFFICE FUND ANNUAL REVIEW JUNE About the Manager Managed for performance CAPTION TBA IOF TEAM About the Manager of IOF IOF is managed by Investa Listed Funds Management Limited (ILFML), which is the Responsible Entity of IOF. ILFML is part of Investa Property Group (Investa). IOF is an externally managed Real Estate Investment Trust (REIT) and pays a fee to ILFML as manager, to cover all resource and administration expenses. About Investa Investa is Australia s largest owner/manager of commercial office properties, controlling office assets worth approximately $7 billion. The portfolio comprises more than 45 buildings, located in core CBD markets around Australia, which accommodate more than 1,000 tenants. delivering out-performance for IOF Unitholders Investa s integrated management platform and active asset management approach provide the framework to deliver outperformance for IOF Unitholders. By having its own people directly managing each IOF asset, Investa is able to optimise operational performance, refurbish or redevelop buildings to create value and collaborate with tenants to deliver what they want. CAPITAL PORTFOLIO AND ASSET MANAGEMENT SERVICES TRANSACTIONS SUSTAINABILITY, SAFETY & ENVIRONMENT INVESTA S INTEGRATED PLATFORM INVESTA OFFICE FUND 19 properties tenants 1 477,533sqm total lettable area 2 INVESTA S IN TE G RATE D PLATFO R M PROJECT MANAGEMENT PROPERTY SERVICES PROPERTY MANAGEMENT FACILITIES MANAGEMENT DEVELOPMENT RESEARCH 1. Excluding ownership of Dutch Office Fund 2. IOF ownership

13 ANNUAL REVIEW 11 The Investa platform delivers value for IOF through: > Diverse and deep experience across the funds and asset management team; > Ability and experience in managing significant tenant relationships; > Co-investment in the Fund; > Deal sourcing of investment opportunities, primarily off-market; > Consistent track record of performance; > World leading sustainability capability and practices; and > A robust corporate governance framework. Responsible Property Ownership and Management Investa sets out to optimise the risk adjusted returns of the properties it acquires and manages. The management platform provides a framework for focusing on and improving responsible business practices which are incorporated into all stages of asset ownership and management. This contributes to IOF asset values, optimises environmental and social outcomes and improves long-term investment returns. Investa s corporate responsibility activities are underpinned by a robust governance framework and clear identification of the expectations and priorities of its stakeholders, which informs Fund strategy and activities. In line with this, IOF has adopted Investa s Sustainable Responsible Investment Guidelines (SRI Guidelines) and established its own sustainability strategy which incorporates the following priorities: Investa s most recent environmental performance can be viewed at Signatory of: Principles for Responsible Investment 1 Leadership in governance Investa is committed to putting the rights and interests of IOF investors first in the way it manages the Fund. As UN PRI signatories, labour, environmental, social and ethical considerations are taken into account when dealing with investments. 2 Maximising value through continuously improving the environmental performance of IOF assets Reducing greenhouse gas emissions, energy and water use whilst increasing occupant comfort boosts the financial performance of IOF assets making IOF assets more competitive and compelling for tenants to occupy. 3 Addressing tenant demands Tenants are becoming more focused on sustainability and are demanding more of their office providers. Investa provides IOF with sustainability initiatives designed to create healthier workplaces and reduce tenant costs. 4 Investing in management capability Investa focuses on the people factor to deliver high performing buildings providing more timely and actionable energy data tools to assist building managers to identify and replicate good performance. 5 Commitment to timely, transparent results Investa is pursuing transparency in environmental reporting through regular data visualisations and timely online reporting which can be reviewed by Unitholders in Investa s annual sustainability report and via online building scorecards. This holds Investa more accountable and drives continuous improvement.

14 INVESTA OFFICE FUND ANNUAL REVIEW JUNE Strategy IOF strategy SYDNEY HARBOUR IOF s overarching strategy is to be the pre-eminent Australian CBD office fund, delivering high, risk-adjusted returns. The progress towards delivering this strategy will continue in 2013, with key areas of focus being: perth WA NT SA QLD melbourne VIC NSW ACT BRISBANE sydney Canberra 1Portfolio repositioning: Focus on Australia Create and maintain a quality portfolio of investment grade Australian office assets in major CBD markets. 2 Optimisation of portfolio performance: Focus on delivering leasing and total returns 3 Capital 4 Maintain Leverage the strength of Investa s integrated management platform and market-leading position to enhance IOF s portfolio returns. Management: Focus on diversity and efficiency of funding Optimise investment returns through prudent and disciplined capital management. market leading corporate governance: Focus on transparency Maintain the highest standards of corporate governance and ethical conduct. Each of these strategic goals are outlined in detail on pages 14 to 19.

15 ANNUAL REVIEW CREEK STREET, BRISBANE 126 PHILLIP STREET, sydney why Australia? The Fund s strategic focus on Australia reflects the Board and management s view that a single country focus will serve the best interests of Unitholders. Investa has built up a market leading level of expertise and knowledge of the Australian commercial property market over many years, with particular strength derived through expert teams with extensive local knowledge. This expertise and knowledge is evidenced in the FY2012 IOF results, whereby capability has been proven in operational efficiencies, portfolio management, capital management and capital transactions. OVERVIEW of THE Market In a testing global economic environment, the Australian economy has again outperformed its peers. GDP expanded at above trend pace over the last 12 months, while unemployment remained at historically low levels highlighting the underlying strength of the domestic economy. However, due to the extent of structural change currently taking place, there is a significant divergence between the economic performance of different states. Mining, and in particular capital investment in infrastructure projects, has been the engine driving economic growth in recent years, and locations exposed to these industries have performed strongly. Other sectors of the economy have had mixed fortunes, particularly those exposed to the high Australian dollar, such as manufacturing. Many of these sectors are in structural decline, and this is impacting certain areas to a greater extent than others. There is, however, mounting evidence that the benefits of the mining boom are slowly being distributed throughout the broader economy. Domestic consumption has been growing at a robust pace across the nation despite the slowing of retail sales. The business services sector has expanded rapidly this year driving some of this increasing consumption. Although it is difficult to quantify, it is likely that some of this growth can be attributed to servicing the pipeline of resources investment that continues to build. Labour force data highlights that other key white collar industries, such as information technology and the finance and insurance sectors, have also expanded their workforce this year. This suggests that there is an underlying demand for office space a positive sign for owners of office assets. For further detail on the Australian market, and the relevance to the IOF portfolio, see page 22. Source: Australian Bureau of Statistics and Investa Research

16 STRATEGY For personal use only INVESTA OFFICE FUND ANNUAL REVIEW JUNE Portfolio repositioning: FOCUS on AUSTRALIA Create and maintain a quality portfolio of investment grade Australian office assets in major CBD markets. Transition to being 100% Australian, through the divestment of offshore assets and reinvestment of the released capital in investment grade office assets. FY2012 HIGHLIGHTS Sale of $520m of Offshore Assets > Exited US assets at premium to book value Leveraged strong relationships and capital transaction experience to optimise outcomes > Sale of Paris asset at 11% premium to book value > Offshore assets have reduced from 35% of the portfolio to 13% Acquisition of high quality Australian Assets > Circa $400m of accretive Australian acquisitions 25% interest in Deutsche Bank Place, Sydney: one of only nine premium grade assets in Sydney, bought at an accretive yield of 6.3% 50% interest in Telstra Headquarters, 242 Exhibition Street, Melbourne Subsequent to 30 June 2012: A 100% interest in 66 St Georges Terrace, Perth, acquired; an A-grade asset with an estimated 15% rental reversion 1 PERForMANCE Geographic diversity By value Australia Europe USA % $XX $XX $XX Target weightings TACTICAL 5-15% VALUE ADDED 15-25% CORE 70-80% 0 30 JUNE JUNE 2012 TARGET 66 St georges terrace, perth IOF s strategy is to be 100% Australian with a mix of core, value-add and tactical assets to drive high, risk-adjusted returns. IOF will continue to enhance and build its portfolio in the four major Australian CBD markets of Sydney, Melbourne, Perth and Brisbane, covering three asset classifications: > Core properties: to provide stable, solid income through real estate cycles and support distributions and operations; > Value-add properties: offering opportunity for growth through leveraging the Investa platform by redeveloping, re-leasing or undertaking operational change and improvement; and > Tactical properties: which are often smaller assets, that allow IOF to take advantage of specific market opportunities. With Unitholder endorsement we have made significant strides towards achieving our goal of becoming 100% Australian. TOBY PHELPS, FUND MANAGER St Georges Terrace acquisition exchanged on 24 August 2012 and settled on 31 August 2012.

17 ANNUAL REVIEW $ 400m Acquisition of investment grade Australian assets $ 520m Divestment of offshore assets 87 % of IOF portfolio in Australia 15 GOING ForwArd 242 EXHIBITION STREET, MELBOURNE > Continue the transition to a 100% Australian portfolio and enhance the composition and returns of the portfolio. IOF s target weightings are 70-80% core, 15-25% value-add and 5-15% tactical assets. > Sell the remaining European assets > Leverage the capability of Investa s integrated platform to continue to acquire investment grade Australian office assets: Attractive point in real estate cycle to be acquiring assets with marginal cost of debt 5.5-6% and capitalisation rates at GFC levels CASE STUDY Acquisition of 66 St Georges Terrace Subsequent to 30 June 2012, IOF has acquired a quality A-grade property in Perth CBD, with a WALE of 1.8 years and average passing rent of circa $550/m². Located on the north side of St Georges Terrace, the property boasts a central CBD address between William and Barrack Streets. Due to tightening vacancy within the Perth CBD office market and rising rental levels, 66 St Georges Terrace provides IOF with significant rental reversion opportunity, given the weighting of the major tenant expiry profile toward 2013/14. Approximately 54% of tenant income is due to expire in FY2013 and about 37% in FY2015, which is ideally timed to capitalise on the strong rental growth being driven by declining vacancies and strong tenant demand. Purchase Price $82.4m Settlement Date 31 August 2012 Yield Net lettable Area (NLA): 8.1% (including all costs) 11,447m² Year Built: 1990 Levels: 12 Car Parking: 66 NABERS Energy rating: Tenants 3.0-stars 11 major tenants, major occupants: ASIC Subsea 7 Suncorp Australia Post

18 INVESTA OFFICE FUND ANNUAL REVIEW JUNE STRATEGY 2 OptIMIsation of portfolio performance: FOCUS on LEASING and total returns Leverage the strength of Investa s integrated management platform and market leading position to enhance IOF s portfolio returns. Utilise Investa s experience in managing significant tenant relationships, market knowledge, world leading sustainability practices and economies of scale to drive optimal leasing and operational outcomes to maximise both income and capital values. FY2012 HIGHLIGHTS 1 > Successful assimilation into Investa s integrated management platform > Significant de-risking of the Australian portfolio, securing future income: Strong valuation uplift of 5% ($79m) from the Australian portfolio, driven by strong leasing results that exceeded valuer expectations Substantial leasing activity with 80,000m² let (17% of portfolio) Short term income profile materially de-risked Increased occupancy from 95% to 98% Increased WALE from 4.8 to 5.1 years Tenant retention rate of 76%, up from 62% > Generated substantial operational savings to pass onto tenants through re-tendering several contracts enhancing value to tenants, thereby increasing the competitiveness of the building and reducing vacancy risk: PERForMANCE NTA per unit movement FY2011-FY2012 $ Portfolio leasing By area Sqm FY2011 FY2012 FY NTA 30 JUNE ,000sqm FY AU REVALUATIONS 0.04 DOF REVALUATIONS 80,000sqm FY ~7.5% NTA GROWTH OFFSHORE DISPOSALS 0.07 BUYBACK FY13 leasing substantially less than FY12 35,000sqm2 FY NTA 30 JUNE 2012 > NTA per unit of $3.14, a 7.5% increase from 30 June 2011, has been primarily driven by strong leasing results in the Australian portfolio, where leasing outcomes were ahead of valuation expectations $79m increase (~5%) from Australian portfolio valuations > Strong outcome in the disposing of offshore assets, resulting in assets being sold at a 9.7% premium to book value > Buyback of 10% of units, was executed at an average of 17% discount to book value > Soft investment demand resulted in the Dutch Office Fund (DOF) valuations remaining under pressure despite robust operating performance DOF now held at 15% discount to reported DOF Net Asset Value > Approximately 80,000m² of leasing in FY2012 places the portfolio in a strong position in FY2013, with the short-term income profile materially de-risked, particularly in Sydney and Melbourne, where there is concern about slowing tenant demand: Less than 8% of IOF s rental income is expiring in Sydney and Melbourne in FY2013/14 > FY2013 expiries are predominantly in the stronger markets of Brisbane and Perth 1. Statistics relate to Australian Portfolio % of lease expires (not weighted by ownership)

19 5.1 yrs Australian portfolio WALE 6.7 % Australian face rent renewal growth ANNUAL REVIEW % Australian portfolio occupancy Rationalisation of cleaning and security services achieved a 1-2% saving Aggregation of insurance policies across portfolio resulted in a 9% saving NABERS Ratings increases and performance improvements in electricity, gas and water intensity resulted in cost savings for tenants and IOF The IOF portfolio has continued to improve its environmental performance, achieving reductions in electricity, water and emissions intensities and improving overall NABERS ratings. Portfolio environment performance FY2012 Electricity (11 buildings; 303,641m 2 NLA) FY2011 Change GOING ForwArd > Address short-term lease expiries and vacancy risks undertake new leases of longer term expiries to further de-risk income, or position assets for upside > Continued upgrade of assets through disciplined value-add capital expenditure programmes, by focusing on yield on cost and value-add > Continued focus on operational expenditure efficiencies through Investa s management platform New electricity contract to commence is forecast to save $680k within one year Lift services tender forecast to deliver over 15% per annum saving > Ongoing focus on environmental performance Seek to reduce operating costs for buildings and tenants through targeted projects with demonstrable outcomes (see Pulse case study on page 25) > Improved tenant communications and service through: Introduction of annual tenant survey Implementation of Customer Relationship Management system and enhanced accounting system Metered electricity consumption (MWh) 27,773 31,537 Consumption intensity (kwh/m 2 ) % Gas (8 buildings, 188,328m² NLA) Metered gas consumption (GJ) 25,327 24,991 Consumption intensity (MJ/m 2 ) % Greenhouse gas emissions Emissions intensity (kg.co 2 /m 2 ) % Total Carbon Emission Footprint (tco 2 -e) 26,405 30,117-12% Water (11 buildings, 303,641m² NLA) Metered water consumption (kl) 245, ,392 Consumption intensity (L/m 2 ) % NABERS Energy (weighted by NLA) portfolio weighted average (Stars) NABERS Water portfolio weighted average (Stars) La trobe street, melbourne

20 INVESTA OFFICE FUND ANNUAL REVIEW JUNE STRATEGY 3 FY2012 HIGHLIGHTS > $550 million debt refinance in August 2011, with no further short term financing risks > New debt facility of $150m established for liquidity, post acquisition of 126 Phillip Street, Sydney and 242 Exhibition Street, Melbourne > Favourable borrowing position will generate accretive growth opportunities: Comfortable covenant position gearing covenant 50% of total look through liabilities/total tangible assets (actual 26%), interest cover covenant 2.5x (actual 5.8x) Ability to diversify funding sources and debt tenor in FY2013/14 Capital Management: FOCUS on diversity and efficiency of funding Optimise investment returns through capital management initiatives. Focus on diversifying sources of debt funding and extending the tenor of our debt maturity profile. > First major REIT to complete 10% buyback, executed at 17% discount to FY2011 book value. Volume Weighted Average Price (VWAP) of $2.43, driving up NTA by 7 cents > BBB+ S&P credit rating obtained post FY2012 UNIT REGISTER efficiency INITIATIVES > 4:1 unit consolidation reducing unit price volatility and enhancing IOF s alignment with other A-REITs (see chart below) Small Unitholding Sale Facility and Small Parcel Sale Facility established, further rationalising the unit base and reducing administration costs PERForMANCE The Fund has no short-term debt maturities but is seeking to further extend the debt maturity profile over the course of FY2013. Unit consolidation impact on IOF unit price FY2012 $ Jun 11 Jul 11 Aug 11 For personal use only Debt maturity profile FY2012 $M Unsecured multi-currency debt undrawn 1 Unsecured multi-currency debt drawn 1 Secured asset level debt Known future utilisation: $60m Distribution payable 31/8/12 $82m 66 St Georges Terrace late Aug{ FY13 Sep 11 FY14 Benefits of unit consolidation: Higher unit price decreases volatility and increases attraction of IOF to insitutional investors Decreased ongoing registry and administration costs Oct 11 Nov 11 Dec 11 Jan FY15 Feb 12 Mar 12 4:1 unit consolidation Apr FY16 May 12 Jun 12 GOING ForwArd > Utilise benefit of BBB+ credit rating to diversify sources of funding and extend debt maturity profile > Leverage the low cost of debt to acquire accretively > Maintain a disciplined approach to capital expenditure with a focus on yield on cost and value creation > Commitment to remain within IOF s stated gearing range of 25-35% We believe in actively managing IOF s capital to ensure IOF has financial capacity and flexibility to execute on its strategic goals whilst still being committed to financially prudent targets. Ming LONG, CFO, INVESTA 1. Includes $150m facility which initially expires in April 2013 but can be extended to April 2015.

21 STRATEGY For personal use only ANNUAL REVIEW 4 Maintain FY2012 HIGHLIGHTS market leading Governance: FOCUS on transparency Maintain the highest standards of corporate governance and ethical conduct and endeavour to be the benchmark for best practice on corporate governance for externally managed REITs. 19 > Responsible Entity dedicated only to IOF with Independent Chairman and Independent Board > Alignment between manager and Unitholders through fee structure linked to market capitalisation > One of the lowest management expense ratios for the A-REIT sector (circa 37 basis points) > Unitholders have strong governance protections with approval required for: Real estate related party transactions Ratification of appointment of Independent Directors > Modernisation of constitutions of the Trusts comprising IOF > Adopted the risk management framework of Investa to ensure governance objectives are met, risk is monitored and assessed and performance is optimised > Diversity achieved for IOF Board, with 40% female, including a female Chairman > Adopted Investa s SRI Guidelines and established its own sustainability strategy (see page 11) > Continued commitment to clear and transparent reporting Since taking over IOF, Investa has delivered enhanced governance and disclosure. RE fees have reduced considerably over the year and our reporting method provides an accurate reflection of the underlying performance of the business and use of capital. GOING ForwArd > Market capitalisation based RE fee of 0.55% per annum, from July 2012 > Commencement of ratification of individual Independent Directors by Unitholder vote at the 2012 Annual General Meeting > Continued commitment to clear and transparent reporting > IOF s website is currently being upgraded to enhance Unitholder experience and communications DEBORAH PAGE, CHAIRMAN, ILFML

22 INVESTA OFFICE FUND ANNUAL REVIEW JUNE IOF Portfolio 5%For personal use only Property portfolio Lease expiry profile By income % FY2011 FY % 58% % 12% 12% 14% 7% 8% 4% 4% 11% 0 Vacant FY13 FY14 FY15 FY16 FY17 NABERS rating Portfolio weighted average FY2011 FY2012 Stars Energy Water 3.4 Total portfolio Property Net lettable area (sqm) Book value 2 ($m) Cap rate (%) WALE (yrs) Occupancy at 30 Jun 2012 (%) FY12 Net property income 1 ($m) Deutsche Bank Place 126 Phillip Street, Sydney, NSW (25%) 42, Bond Street, Sydney, NSW (50%) 37, George Street, Sydney, NSW (50%) 38, Kent Street, Sydney, NSW 26, Clarence Street, Sydney, NSW 16, Campus MLC Miller Street, North Sydney, NSW 27, Pacific Highway, North Sydney, NSW 18, Hitachi Complex 239 George Street, Brisbane, QLD 15 Adelaide Street, Brisbane, QLD Australian Government Centre 140 Creek Street, Brisbane, QLD 295 Ann Street, Brisbane, QLD 232 Adelaide Street, Brisbane, QLD 24,414 11,605 28,158 20,274 4,459 Telstra Global Headquarters 242 Exhibition Street, Melbourne, VIC (50%) 65, QBE House 628 Bourke Street, Melbourne, VIC 24, Royal Mint Centre 383 La Trobe Street, Melbourne, VIC 9, Toorak Road, Melbourne, VIC (50%) 41, Wellington Central 836 Wellington Street, Perth, WA 11, Times Square Mort Street, Canberra, ACT 14, TOTAL AUSTRALIAN PORTFOLIO 464, , TOTAL EUROPEAN PORTFOLIO 869, TOTAL IOF PORTFOLIO 1,334, , Excludes assets sold during period 2. Book value based on IOF s ownership 3. NLA IOF ownership = 341,448sqm 4. NLA IOF ownership = 136,086sqm 5. NLA IOF ownership = 477,533sqm 6. NPI reflective of post 2 April 2012 acquisition date

23 ANNUAL REVIEW 21 Investa s integrated management platform enables the Fund Manager to focus on the strategy, broader markets and trends while our asset and property services team implement the asset strategy and drive operational efficiencies. CAMPBELL HANAN, HEAD OF INVESTA OFFICE Top 10 tenants Geographic diversification by value Federal / State Government ANZ Telstra IAG NAB Coles Westpac QBE Allens Transfield Services % 17% 2% 13% 3% 46% REGION $m NSW 1,149.5 QLD VIC WA 73.0 ACT 37.0 Europe Total 2,492.3 Australian portfolio environmental performance statistics NABERS NABERS emissions Electricity Gas Water Energy Water intensity intensity intensity intensity rating B rating B Property (kg.co 2-e/m 2 ) (kwh/m 2 ) (MJ/m 2 ) (L/m 2 ) (Stars) (Stars) Deutsche Bank Place Phillip Street, Sydney, NSW Bond Street, Sydney, NSW A A 388 George Street, Sydney, NSW Kent Street, Sydney, NSW D Clarence Street, Sydney, NSW Campus MLC Miller Street, North Sydney, NSW Pacific Highway, North Sydney, NSW Hitachi Complex D George Street, Brisbane, QLD F F F F F F 15 Adelaide Street, Brisbane, QLD F F F F F F Australian Government Centre 140 Creek Street, Brisbane, QLD 295 Ann Street, Brisbane, QLD 232 Adelaide Street, Brisbane, QLD 83 F F F Telstra Global Headquarters 242 Exhibition Street, Melbourne, VIC Bourke Street, Melbourne, VIC Royal Mint Centre 383 La Trobe Street, Melbourne, VIC C C C C Toorak Road, Melbourne, VIC C C C C C C Wellington Central 836 Wellington Street, Perth, WA Times Square Mort Street, Canberra, ACT Weighted Average E F F F D F F F 674 F F F G G Notes: A. Could not be rated due to insufficient occupancy immediately following building refurbishment. B. NABERS ratings are presented for all buildings under the management control of Investa between 1 July 2011 and 30 June C. Data is not reported as management control for the building is assigned to the tenant under the terms of the lease. D. Gas is not used on site. E. Excludes assets not owned for the duration of the reporting period being 242 Exhibition Street Melbourne, and 126 Phillip Street Sydney (with exception of NABERS ratings). F. Aggregated data is collected for this group of assets. G. NABERS Ratings are collected at the building level for these assets.

24 INVESTA OFFICE FUND ANNUAL REVIEW JUNE Market Overview IOF and the Australian Market Sydney lease expiry profile By NLA Lease expiry profile (LHS) Vacancy forecast (RHS) 20 year average vacancy (RHS) % % Melbourne lease expiry profile By NLA Lease expiry profile (LHS) Vacancy forecast (RHS) 20 year average vacancy (RHS) % % Minimal expiry risk Minimal expiry risk FY13 FY14 FY15 FY16 FY FY13 FY14 FY15 FY16 FY17+ 0 IOF is confident that market fundamentals in Australia will continue to benefit the office sector and that the Fund is well placed to take advantage of the opportunities which are expected to flow in its target markets. Like the broader Australian economy, office markets have proved to be resilient in spite of volatile financial markets. Vacancy rates are below long term averages and overall tenant demand has held up well. These factors, combined with an outlook for supply that is below average for the next few years, have resulted in increasing market rents and asset valuations. Perth market rental levels have surged in FY2012, due to high levels of tenant demand mainly from the resources sector. Similarly the Brisbane market has turned; vacancy has now peaked and rents have re-entered the growth phase. Conditions in the other major markets, such as Sydney and Melbourne, have been more challenging, with tenant contractions in some sectors being offset by the expansion of other industries. Despite tenant demand moderating in these markets over the last 12 months, rents have continued to increase, driving income and capital returns. IOF s portfolio is well positioned against potential headwinds, with minimal leasing risks in Sydney and Melbourne, and opportunities in Brisbane and Perth BEN BRAYSHAW, PORTFOLIO MANAGER SYDNEY OVERVIEW Assessing the momentum of the NSW market has been difficult this year. Strong rental growth has been recorded in Sydney, whilst tenant demand has moderated and recent confirmation of the Barangaroo development has also added to the future supply pipeline. There are, however, factors that will insulate Sydney from some of these risks. Vacancy is at average levels in the CBD, and tight throughout the metropolitan area. We expect the recent trend of tenant relocations to the CBD to continue over the medium term. > The Barangaroo development could add up to 6% to total stock from late 2015 > Restricted supply for the next 3 years, with circa 20,000sqm net supply expected to be delivered, compared to the 20 year average of approximately 64,000sqm > Demand has been subdued, however market rents have grown strongly during FY2012 > Tight metropolitan markets to boost medium-term CBD absorption Melbourne OVERVIEW The Melbourne CBD office market led the Australian office market into recovery post-gfc, however recently the outlook for the Victorian economy has worsened due to a higher weighting to currency exposed industries such as education and manufacturing. This has moderated demand for office space and incentives have increased accordingly. However, the broader metropolitan office market has bucked this trend and has continued to perform well. > Market conditions have softened driving up tenant incentives > New supply at levels around the long-term average to be delivered over the medium term > Relocation of metropolitan tenants to the city to boost CBD absorption Source: Jones Lang LaSalle Research and Investa Research

25 ANNUAL REVIEW 23 Brisbane lease expiry profile By NLA Lease expiry profile (LHS) Vacancy forecast (RHS) 20 year average vacancy (RHS) % % Expiries fall when vacancy is expected to be low Perth lease expiry profile By NLA 1 Lease expiry profile (LHS) Vacancy forecast (RHS) 20 year average vacancy (RHS) % % 100 Expiries fall when vacancy is expected to be low St Georges Terrace FY13 FY14 FY15 FY16 FY FY13 FY14 FY15 FY16 FY17+ 0 BRISBANE OVERVIEW The Brisbane office market is now in recovery mode after the 2012 delivery of speculative development that started pre-gfc. Strong tenant demand from the resource sector and associated industry has mitigated much of the vacancy risk resulting from the recent supply completions. This has boosted rental levels, and incentives have also begun to reduce. There is now minimal supply under construction over the mediumterm and as a result the outlook is positive for future investment returns. > Brisbane market now in recovery mode > Vacancy likely to peak for this cycle in 2012 > Resource related capital investment will underpin demand in the medium-term perth/canberra OVERVIEW The Perth CBD has been the standout office market this year. Prime grade vacancy is near record lows due to demand from resources related industries and this competition for space has driven strong rental growth. Canberra is a much more challenging market. Although robust demand has driven the vacancy rate below 10% this year, ongoing delivery of supply is likely to stall any meaningful market recovery until the excess office space can be absorbed. > Contrasting office market conditions in WA and ACT > Low vacancy and high levels of demand delivering rental growth in Perth > Canberra still feeling the impact of new supply entering the market 1. Including the post 30 June 2012 acquisition of 66 St Georges Terrace, Perth, which has lease expiries forecast for FY2013, 15, 16. Source: Jones Lang LaSalle Research and Investa Research 347 KENT STREET, SYDNEY

26 INVESTA OFFICE FUND ANNUAL REVIEW JUNE CASE STUDY 1 HITAchI COMpleX 239 George Street and 15 AdelAIde Street, Brisbane, Qld Better management of building operations delivers tangible results. PERForMANCE Within a year of assuming management of Brisbane s Hitachi Complex, Investa has increased the site s NABERS Energy rating from 3.0 to 4.5 Stars. In the transition, Investa s experienced facilities management team undertook a comprehensive review of building operation practices and employed strategies to maximise the value of equipment and control systems on-site. Electricity use in the building has reduced by 16% this financial year, the equivalent of a $2.65/m 2 reduction in outgoings to tenants in the building. Actions taken onsite included a complete overhaul of the Building Management and Control Systems and processes controlling the heating and cooling of the building. These account for more than half of the energy expenditure of the building. The daily start up systems and temperature monitoring were reviewed, variable speed drives repaired or installed and LED lighting systems installed. The Hitachi Complex demonstrates Investa s management approach which focuses on maximising the performance of its assets and delivering savings to tenants, investors and the environment. 232 ADELAIDE STREET, BRISBANE 16 % electricity consumption decreased from 106.7kWh/m² to 89.3kWh/m² (savings of $2.65/m 2 ) 18 % decrease in water intensity from L/m² to L/m² 17 % reduction in CO 2 emissions from 94.9 kg.co 2/m² to 78.8 kg.co 2/m²

27 ANNUAL REVIEW 25 CASE STUDY 2 Data tools for building performance Low cost performance improvements with new data tools. PERForMANCE Pulse tracks the patterns of electricity use in office buildings and provides timely and actionable feedback to building operators. Investa is turning to more sophisticated management methods such as Pulse, to achieve performance improvements across the portfolio, without capital expenditure. The Pulse tool gives building operators daily weathernormalised feedback on the performance of their buildings, informing them whether yesterday their building had a good day, or not. Armed with this information, IOF building operators have been able to tweak and fine-tune their plant and equipment on a daily basis. Initiatives that work are retained and those that don t are discarded. Eight IOF buildings are now using Pulse. Since Pulse began, there have been consistent savings of approximately 7% against the buildings expected performance model, with some IOF buildings reaching over 20% savings. Investa recognises the importance of the people factor in cutting energy use from building operations; finding better ways to inform, empower and motivate our people to deliver better comfort to Investa building occupants while considering the energy used and associated costs to provide that service. You can learn more about this innovative tool being used by IOF building managers and view live Pulse visualisations from Investa buildings at Green Buildings Alive:

28 INVESTA OFFICE FUND ANNUAL REVIEW JUNE People Our team IOF MANAgeMent TEAM The IOF management team comprises high calibre industry professionals with a diverse range of skills and experience. The team s complementary skills and dedication to the Fund enables a balanced approach to managing the Fund both operationally and strategically. Toby Phelps Fund Manager Toby is responsible for actively driving the long-term strategy and performance of the Fund. 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. Ben Brayshaw Portfolio Manager Ben s role incorporates day to day management of IOF s portfolio with responsibility for developing strategic and financial objectives for each asset, and leveraging the broader Investa platform to ensure that assets are managed in line with the Fund s objectives, and planned bottom line results are achieved. Ben has 10 years industry experience in property funds management. Alex Abell Investor Relations Manager Alex is responsible for managing key relationships between IOF and the investment community. Alex works closely with the Fund Manager to ensure all communication regarding strategy, operational performance and results is timely, consistent and effective. Ivan Gorridge CFO Investa Office Ivan is responsible for all finance functions including financial and management reporting, funding analysis and compliance obligations for the Investa Office division. Ivan joined Investa in 2004 and has over 15 years experience in finance, obtained from a variety of industries and in different countries. Angela Reade, IOF s Investor Relations Manager for FY2012, is currently on maternity leave. our people IOF does not employ any staff directly; all staff working for IOF are employed by Investa Investa employed 256 staff (as at 30 June 2012) 8 Staff working exclusively on IOF, with over 35 staff assisting IOF across Investa s integrated management platform

29 ANNUAL REVIEW 27 Investa team working with IOF Investa has a large, experienced team of professionals focused solely on Australian office markets and operations. Investa is one of the very few end-to-end office managers with staff employed in all aspects of operations including: > Asset and Portfolio management; > Property services; > Sustainability, safety and environment; > Commercial Developments; > Capital Transactions; and > Research. Investa s ethos is instilled by the values of Teamwork, Integrity, Innovation and Performance. Team behaviour and work ethic are underpinned by these values, enabling a positive and high performance working environment. Iof Board of directors IOF s Board comprises a majority Independent Directors, including an Independent Chairman. Board Members have extensive experience within the industry, and their collective knowledge and commitment to IOF strengthens the efforts of the management team. Deborah Page AM Peter Rowe Peter Dodd Scott MacDonald Ming Long Dorothy Mioduszewska Jonathan Callaghan Independent Chairman Non Executive Director Non Executive Director CEO and Chairman of Investa Property Group CFO of Investa Property Group Company Secretary Company Secretary For further detail and bios on the Board, please see page 5 of the Annual Report, accompanying this Annual Review. InvESTA OFFICE INTEGRATED MANAGEMENT platform Asset and Portfolio Management Property Services Capital Transactions Sustainability, Safety and environment Research Commercial Developments IOF Responsible Entity services ILFML RESPONSIBLE ENTITY Majority Independent Board Risk management framework and audit and compliance Strategic direction Approval of significant transactions

30 INVESTA OFFICE FUND ANNUAL REVIEW JUNE Stakeholder Engagement Key IOF stakeholders Investa recognises that IOF stakeholders have high expectations regarding how the Fund is managed and how Investa operates its business. As a result, we have committed to a range of initiatives to ensure the interests of each stakeholder group are considered, which reduces the risk to our strategy. Investors Tenants Focus Robust, market leading governance framework Transparency of disclosure and reporting Leverage the benefits of Investa s integrated real estate ownership and management platform Utilise the systems, experience and active management approach of Investa s shared services division to deliver administrative savings Achieve an investment grade S&P credit rating for IOF Consolidate IOF assets into Investa s national contracts and procurement management system, to achieve operating savings and efficiencies Optimise the environmental performance of IOF assets through tenant initiatives Leverage Investa s in-house property management team to deliver better service to IOF tenants Apply Investa s stringent work, health and Safety and risk management platform to IOF assets to provide a safe environment for tenants (and their visitors) IMPACT > Ensures the interests of investors underpin decision making through: Adequate management oversight; Structuring the Board to add value; Promoting ethical and responsible behaviour; Appropriate and performance linked remuneration though fees tied to market capitalisation; Safeguarding the integrity of financial reporting; Making timely and balanced disclosure; Respecting the rights of Unitholders; and Recognising and managing risk. > Produces stronger tenant relationships and higher retention rates which in time reduces vacancy and capital expenditure costs required to re-lease space. > Investa s scale provides significant purchasing power and results in operational, capital expenditure and management cost savings. > Detailed market knowledge and in-house research allows for better informed investment decisions, which can result in better risk-adjusted returns. > Reduced IOF arrears from $923,019 (6.98%) to an annual average of $699,832 (4.24%) within 12 months. Reached a closing arrears balance of $126,726 in FY2012, a reduction of $796,239 over the period. 1 > BBB+ S&P credit rating obtained, providing the Fund with access to more diverse funding sources, facilitating a further reduction in the Fund s risk profile. > Quantity of IOF vendors and suppliers rationalised. > Transfer of cleaning & security services resulted in 1%-2% saving. > Consolidation of insurances policies resulted in 9% saving. > Increased participation in Investa s Green Lease, Ecospace and Greenhouse Guarantee initiatives provides the opportunity to engage with and educate tenants on how to deliver more sustainable workplaces, which can result in decreased operating costs for tenants, and increased occupant comfort and productivity. > Property Managers employed directly by the manager generally take greater ownership of their buildings and are more directly accountable for their day-to-day performance. > Investa awarded a score of 97.2% and a Five Star Group Safety rating in the National Safety Council of Australia (NSCA) audit system, which tracks building safety and injury and illness statistics. Provides reduced occupational risk. 1. Investa took over the management of the assets from the outgoing real estate agent in July The arrears rate of 6.90% represents Investa s opening arrears position for FY2011, as at May 2011.

31 ANNUAL REVIEW 29 Environment Suppliers People Community Focus Consistent improvement across key environmental measures including greenhouse emissions, electricity, water and gas use, NABERS Energy and Water ratings Through innovation and the strength of Investa s sustainability platform develop tools to enable more effective and efficient building management and operation Commit to partnerships and initiatives that stimulate progress and continual improvement in responsible investment Align contractor processes and conduct to Investa s stringent environmental and operational standards Attract and retain talented people to implement IOF s investment strategies and manage and operate the assets Engage with the wider community through volunteering and community investment to deliver societal benefits IMPACT > Maximises operational potential of assets and delivers management efficiencies which reduces operating costs and improves performance. > Increases the skill base of operational staff, resulting in greater management effectiveness, mitigating operational risk A case study on Investa s building insight tool Pulse can be reviewed on page 25. > Maintain Investa s participation in the United Nations Principles for Responsible Investment (UNPRI), Responsible Investment Association of Australia Certification Program (RIAA SRI), Green Building Council of Australia, Better Building Partnership with Sydney City Council and the Property Council of Australia. > Key performance indicators for environmental, social and governance performance included in IOF procurement process; > Investa s Safety, Health and Environmental Management System introduced to IOF assets with Site Automated Safety Sign-In system and procedures implemented across all IOF assets. > Engaging with employees regularly, rewarding them for performance and providing development opportunities via education and training leads to a more engaged, higher performing workforce to manage IOF: Investa bi-annual employee survey completed to monitor employee engagement and feedback; 100% of permanent Investa staff participated in Investa s formal Performance and Development program; 100% of staff completed Insider Trading course; 40% of staff participated in the Team Development Program; Maintained employee Continuing Education and Study Assistance Policy and Employee Benefits Program ; Launched a new Learning Management System to facilitate the delivery of learning and development across the business. > Progress achieved on diversity for IOF and Investa workforce, with 40% of the IOF Board female and 40% across the organisation. > Investa staff worked to deliver the highest total donations for the Property Industry Foundation (PIF) in 2011 for the third year in a row; > Staff donated time away from work to a range of co-ordinated community activities as part of Investa s Active in the Community program.

32 INVESTA OFFICE FUND ANNUAL REVIEW JUNE Performance Overview Five year summary Prior year balances have been recalculated where necessary for the 4:1 unit consolidation in Unit of Measure FY2012 FY2011 FY2010 FY2009 FY2008 Financial Revenue $m Responsible Entity Fees $m Net Profit (statutory) $m (764.2) Operating Earnings $m Total Assets $m 2, , , , ,545.4 Total Liabilities $m , ,230.7 Gearing Ratio (look-through) % Operating Earnings per Unit cents Net Tangible Asset per Unit $ $ Security holders No of Unitholders # 17,588 23,068 25,375 26,211 26,924 Units on Issue millions Securities on issue to top 20 Unitholders 1 % Market Capitalisation $bn Total Distributions per unit cents Tax Deferred Component % Operational Portfolio Occupancy % WALE years No. of Investment Properties 2 # NLA 000s sqm 477, , , , ,725 Total Book Value $bn Australian Owned Assets % No of Tenants # Retention % Like-for-Like NPI Growth % 0.2 (0.6) Unit of Measure FY FY FY FY FY Environmental Energy and Emissions Greenhouse gas emissions tonnes 26,405 30,117 Greenhouse gas emissions intensity kg.co 2 -e/m Electricity consumption intensity kwh/m Gas consumption intensity MJ/m Weighted average NABERS Energy rating (Stars) Stars Water Water consumption kl 245, ,392 Water consumption intensity L/m Weighted average NABERS Water rating Stars Securities on issue to top 20 Unitholders is as at 31 August of each year 2. Includes investment in DOF 3. Annual calculation are based on April to March period ie. April 2011 to March Environmental performance prior to FY2011 has not been assured and is therefore not presented

33 ANNUAL REVIEW PHILLIP STREET SYDNEY 388 GEORGE STREET, sydney 111 PACIFIC HIGHWAY, NORTH SYDNEY