Cfs Retail Property Trust (Cfx)
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Responsible Entity: Commonwealth Managed Investments Limited ABN 33 084 098 180 AFSL 235384 Registered Address: Ground Floor, Tower 1 Colonial First State Property Retail Pty Limited 201 Sussex Street ABN 19 101 384 294 Sydney NSW 2000 Manager of CFS Retail Property Trust Principal Office of the Manager: Level 7 52 Martin Place GPO Box 3892 Sydney NSW 2001 Australia Telephone: 02 9303 3500 Facsimile: 02 9303 3622 21 February 2012 CFS RETAIL PROPERTY TRUST (CFX) Half-year results for the six months ended 31 December 2011 Overview CFS Retail Property Trust (CFX or the ‘Trust’) once again delivered a solid result for unitholders, generating a net profit of $201.7 million for the six months to 31 December 2011, driven by a commitment to active asset and capital management. Angus McNaughton, Managing Director of Property for Colonial First State Global Asset Management (CFSGAM) said: “Despite the headwinds facing the Australian retail property market which are having an impact on retail spending, the CFX team achieved solid growth for the Trust. The quality and scale of a shopping centre portfolio and a manager’s ability to leverage tenant relationships, effectively market the centres and assist retailers in driving sales, are vitally important; and our team is a market leader in this field.” Michael Gorman, Fund Manager of CFX said: “In the 12 months to 31 December 2011, we saw a positive sales trend for specialty stores and supermarkets, with weakness in department stores and discount department stores. Pleasingly, in the six months to 31 December 2011, we also achieved an average rental increase of 2.7% with standard fixed 5% annual increases for retail specialty stores that were re-leased.” Key operating highlights for the period included: • Net profit of $201.7 million • Distribution of 6.5 cents per unit, up 3.2% on the 6.3 cents per unit for the previous corresponding period • Net property income increased 11.1% and on a like-for-like1 basis increased 4.1% • Distributable income2 was up 9.5% • Net tangible asset backing (NTA) per unit increased to $2.06 at 31 December 2011 • Total assets increased 2.4% to $8.7 billion at 31 December 2011 • Issued $300 million of new convertible notes (due to expire in July 2016) • The Trust’s gearing3 was 28.1% at 31 December 2011 • Continued work on the $1.2 billion development pipeline • The income stream relating to the earnings of the CFSGAM Property asset management division provided the Trust with $5.3 million in income • An increase in shopping centre retail specialty moving annual turnover (MAT) on a comparable4 basis of 2.9% over the 12 months to 31 December 2011 compared to the previous period, underlining the strength of the CFX portfolio • Average rental increases of 2.7% with standard fixed 5% annual increases for retail specialty stores that were re-leased5, and • Awarded government grants of $0.8 million to contribute to efficiency improvement schemes over four shopping centres 1. Including those assets owned for both six-month periods and excluding the impact of developments. 2. Distributable income is a key financial measure used by management to assess the performance of the Trust. Distributable income equals net profit excluding fair value adjustments from investment properties, associates and derivatives; straight-lining revenue; the movement in fair value of unrealised performance fees; non-cash convertible notes interest expense; adjustments for convertible notes buy-back expense; and adjustments for project and other items. 3. Gearing equals borrowings to total assets. For this calculation, total assets exclude the fair value of derivatives and borrowings is the amount drawn down as per Note 5 of the Interim report, adjusted for the fair value of cross currency swaps. 4. Comparable centres refer to those centres that are not undergoing or have not undergone substantial redevelopment in either period of comparison. 5. Renewals and replacements. Financial results CFX’s net profit for the six months to 31 December 2011 was $201.7 million, compared to a net profit of $346.5 million for the previous corresponding period, with the reduction primarily due to a change in the fair value of derivatives (mark to market of interest rate hedges). The net profit included a net gain on investment properties and associate revaluations of $112.7 million (compared to a $158.7 million net gain for the previous corresponding period) and a net loss on the fair value of derivatives of $68.3 million (compared to a $26.8 million net gain for the previous corresponding period). Distributable income was up 9.5% to $184.6 million, compared to $168.6 million for the previous corresponding period. Underlying the result was an 11.1% increase in net property income to $278.5 million. On a like-for-like basis, net property income increased by 4.1%. Distribution The Trust will pay a distribution of $184.6 million, compared to $178.0 million for the previous corresponding period. This equates to a distribution of 6.50 cents per unit, which is a 3.2% increase on the 6.30 cents per unit paid in the previous corresponding period. The distribution will be paid on 28 February 2012. Total assets Total assets at 31 December 2011 were $8.7 billion, increasing 2.4% from $8.5 billion at 30 June 2011, largely driven by positive independent valuations within the portfolio and ongoing expenditure on the development pipeline. NTA per unit increased from $2.05 at 30 June 2011 to $2.06 at 31 December 2011. The Trust’s portfolio consists of 29 retail properties located across Australia, with 78% of the portfolio comprising super-regional or regional shopping centres6. Investment performance For the six months to 31 December 2011, CFX recorded a total return7 of -3.7%, which was above the UBS Retail 200 Accumulation Index (the ‘Index’) return of -5.6%. Over the 12 months to 31 December 2011, the Trust delivered a total return of 2.8%, outperforming the Index return, which was -7.0% over the same period. Over the three, five and 10-year periods, CFX outperformed the Index by 2.8, 11.3 and 7.5 percentage points per annum respectively. The performance fee, calculated every six months, is capped at 0.15% per annum of the Trust’s gross asset value up to $3.5 billion and capped at 0.10% per annum of the Trust’s gross asset value above $3.5 billion, with any over/underperformance carried forward. For the six months to 31 December 2011, CFX outperformed the customised retail property accumulation index8 (the ‘benchmark’) by 4.5 percentage points. Accordingly, the Responsible Entity was entitled to a performance fee of $5.3 million for the six months ended 31 December 2011. Taking into consideration the carry-over of outperformance from 30 June 2011, the carry-forward balance is 56.5 percentage points of outperformance over the benchmark. Full details of the performance fee are detailed in Note 7 to the Interim report. 6. As defined by the Property Council of Australia. 7. Total return comprises unit price performance and distribution income yield. 8. For the purposes of calculating the performance fee, the benchmark, which is the UBS Retail 200 Accumulation Index, is customised to remove the effect of CFX on the Index. A 20-day volume weighted average price (VWAP) is applied to both the CFX accumulation index and the customised index. 2 Capital management Continued concern over European sovereign debt issues and its impact on global conditions resulted in caution re-entering credit markets and was a driver in the Reserve Bank of Australia’s decision to reduce the official cash rate in November and December. Mr Gorman said: “In this environment, we continued to focus on our active but disciplined approach to capital management to ensure that the Trust’s balance sheet remains flexible and a competitive cost of capital is maintained, a focus which we consider prudent.” On 4 July 2011, we successfully raised $300 million in new 5.75% July 2016 convertible notes, which were used to fund the buy-back of $300 million of existing convertible notes maturing in August 2014 (with an investor put option in August 2012). In December 2011, we initiated a buy-back of the outstanding convertible notes expiring in August 2014 and with an investor put option in August 2012. To date, this has resulted in the buy-back of $4.2 million of convertible notes and the outstanding August 2014 notes have a face value of $290.8 million. During the period, we put in place $300 million of new bank debt facilities to replace the outstanding August 2014 convertible notes in the event that all investors exercise their put option(s) in August 2012. We also refinanced the expiring $125 million and $100 million bank debt facilities that were due to expire in December 2011 and February 2012 respectively. Post the period, we raised $100 million in medium term notes. As at 31 December 2011, the Trust’s gearing level was 28.1% (up from 27.0% at 30 June 2011), with borrowings of $2,443.4 million. The increase in gearing was largely driven by debt funded capital expenditure on the development pipeline. During the period, we terminated and replaced a number of interest rate swaps, improving the Trust’s weighted average cost of debt. At 31 December 2011, the Trust’s weighted average debt maturity was 3.4 years and the weighted average interest rate (including margins and fees) was 6.5%. In order to provide the Trust with greater certainty of financing costs, the Manager maintains a high level of hedging in the near term.