FKP Property Group Full Year Results Presentation · $375m facility is secured against assets with...

FKP Property GroupFull Year Results Presentation 27 August 2009

2

CONTENTS1. Overview2. Summary of Group Results3. Capital Management4. Divisional Commentary5. Summary6. Retirement Supplementary Analysis7. Appendices

3

Overview

Strong Financial Position

Quality Residential Asset Base

• Operating and capital initiatives have placed FKP in a strong financial position with headroom to unlock profit from its land bank. Gearing 28% at July 2009

• FKP is set to capitalise on the recovery cycle with significant leverage to the residential sector through its retirement assets, master planned communities and apartment development sites

4

Residential Recovery

Low interest rates, improved affordability and rising confidence have positioned the residential sector for recovery.

Australian Housing Sales Volume (000’s)

Source: ABS, 2009

0

10

20

30

40

50

60

70

Feb-07 May-07 Aug-07 Nov-07 Feb-08 May-08 Aug-08 Nov-08 Feb-09 May-09

5

Highlights by Business Segment

• Major commercial projects successfully sold – TAC and Energex (post balance date)

• SL8 residential completed with negligible fall-over rate• Concentration on clearing inventory to recycle capital• Quality urban sites being re-weighted towards residential

Development

• Income streams satisfactory – slowdown rules out performance fees• RVG recapitalised and Core Plus funds have funding headroom

Funds Management

• First stages of Point Cook under construction with >200 pre-sales• Peregian Springs / Ridges impacted by slowdown but 2H stronger

than 1H• Rochedale approvals expected in coming months

Land

• Difficult year finished on a high note with strong June 2009 quarter• Positive momentum continuing into first quarter of FY10• Average portfolio price growth of 6%

Retirement

6


7

• FY09 operating profit of $78.6m – within guidance of $75m - $80m

• 2H impairments and other non-operating charges of $269.4m, within guidance of $260m - $280m1

• Full year statutory result of $319.4m loss, consistent with guidance2

• Operating EPS of 7.0 cps (pro forma for full year impact of July 2009 Entitlement Offer)

• 2H distribution confirmed at 1.45 cents per security (payable September 2009, nil franked)

Profit and Loss

1 Refer to Appendix 1 for final 2H FY09 non operating items2 Refer to Appendix 2 for a reconciliation of operating profit to statutory profit

8

Operating Profit

50%(3.6)(5.4)Depreciation and Amortisation

40%232.3139.5EBIT

43%46.626.5Trust and Investments

62%37.214.3Development

Steady(4.5)(4.4)Outside Equity Interests

39%235.9144.9EBITDA

6%(37.3)(35.0)Interest

46%195.0104.5Profit Before Tax

67%5.71.9Funds Management

Steady(20.5)(20.5)Unallocated Overhead

47%(40.3)(21.5)Tax

150.2

154.7

41.0

125.9

Jun 08

48%

46%

92%

5%

Change %Jun 09Division

78.6

83.0

3.2

119.5

NET PROFIT1

Profit After Tax

Land

Retirement

1 Refer to Appendix 3 for a reconciliation of segment notes to divisional operating profit and Appendix 4 for June 2009 Balance Sheet

9

NTA per Security

$1.221

$3.15

Pro Forma for July Capital Raising

Actual NTA per security at June 2009

Based on its closing price of $0.59 on 26 August 2009, securities are currently trading at 52% discount to NTA

1 Based on 1,161,035,473 securities outstanding post the July 2009 completion of the Entitlement Offer

10

• Effective 1 July 2009, FKP has streamlined its management reporting structure

• The previous state-based structure has been replaced by a national platform to leverage functional expertise on a national basis

New National Platform for Operations

• The new structure, together with rigorous cost control, sees FY10 budgeted headcount numbers reduced by >30% on FY09

• Future reporting will be by these segments

FKP Property Group

Retirements Residential & Communities

Commercial & Industrial

ConstructionFunds

ManagementProperty Trust &

Investments

11


12

• FKP’s successful capital initiatives have placed the Group in a strong financial position

Capital Management Focus

• Extended or restructured $1.1b of debt facilities

• No material debt maturities until March 2011

• Operating cash flow and non-core asset disposals have significantly increased available headroom

Debt Management

• Large asset sales from FKP or managed vehicles since mid-2008 have generated approximately $500m in proceeds

• Concentration on clearance of completed inventory

• Significant reductions in employment and other operating costs (no short term incentives for FY09)

• Financing of Energex completion phase assumed by purchaser

Cash Flow Management

• Successful completion of $324m Entitlement Offer in July 2009

• Strong take up by security holders considering the renounceable structure of the issue

Equity Management

13

Capital Recycling• Despite tough market conditions FKP continues to successfully recycle a significant

amount of capital through sales of product or pre-sales with fund-through arrangements

FKP JV110Melbourne Industrial512Total

1311121

1

No. of Transactions

FKP173Brisbane Commercial (sale and fund through)

Trust30Brisbane Retail

FKP91Victorian Commercial

FKP JV35Sydney Retail (sale and fund through)

CPT1122Brisbane Office

FKP22Sydney Retail (sale and fund through)FKP15Queensland ResidentialFKP14Victorian Retail

VehicleValue($m)Major Recent Asset Sales and Fund Throughs

14

Strong Operating Cash Flow

114.6

(100.4)

215.0

Jun 09 1

6.2

(257.0)

263.2

Jun 08

Net Cash Flow from Operations per Statutory Account s

Expenditure on inventory for future period realisation

Cash generated from recurring income and past development activity

• Lower level of new development expenditure highlights strong operating cash flow

• Sale of TAC and SL8 significant contributors to FY09 operating cash flow

• Under the alternative accounting policy adopted by some property groups, whereby “expenditure on inventory for future realisation” is classified with in “investing cash flows,” FKP would report “net cash flow from operations” of $215m for FY09

1 Refer to Appendix 5 for a summary of the Group change in cash

15

Bank Debt Drawn

1,102

(14)

(37)

1,153

Actual 30 Jun 09

793

(14)

(37)

844

Jun 09 Pro Forma for Entitlement

Offer 1

(50)(18)Less: Cash

(37)(39)Less: Non bank items2

827944“Borrowings” per Accounting Standards

740887Net bank debt drawn

Actual Jul 09 (post Energex)

Entitlement Offer Pro Forma Dec

081

1 Pro forma for the July 2009 Entitlement Offer2 Includes $30m advance from Mulpha FKP joint venture plus vendor finance and lease payables

• The Entitlement Offer presentation in June 2009 used the December 2008 balance sheet as its base. Since December, cash flow generation from operations and asset sales has seen debt levels fall significantly, augmented by the capital raising

Actual net bank debt drawn at 31 July 2009

Valuations at present are typically using debt figures

around this level

16

Gearing

29%

40%

28%

Jul 09 Actual

31%

42%

30%

Jun 09 Pro Forma 1

40%

55%

42%

Jun 09 Actual

55%Covenant Gearing3

Covenant Maximum

Gearing Measure

n/a

n/a

“Look Through Gearing”

Debt Gearing2

• The Entitlement Offer presentation (using December 2008 starting point) showed post-raising gearing of 34%. However as at 31 July 2009, debt gearing has reduced to 28%

1 Pro forma for the July 2009 Entitlement Offer2 Net bank debt to assets net of resident loans3 Adjusted Total Liabilities (total liabilities less resident loans less deferred tax liabilities) divided by adjusted Total Tangible Assets

(total assets less intangibles less resident loans less deferred tax liabilities)

• There are no FKP covenants relating to performance of external vehicles – “look through gearing” is provided for information purposes only

17

Headroom under Bank Facilities

$1,080mTotal Cash Banking Facilities4,5

$740mNet Bank Debt Drawn as at 31 July 2009

$340mAvailable Capacity

MaturityFacility Limit

Cash Banking Facilities

Dec-11$14mPeregian Springs Shopping Centre

Dec-09$12mForest Place Group

Mar-11$375mRetirement Syndicate

Nov-09$36mCurrumbin Acquisition

Dec-09 – Jul-122$320m1Development MOF

FKP Limited Facilities

Jun-12$150mWilbow Acquisition and Development

FKP Property Trust Facilities

Jun-123$173mGeneral Trust

1 The lender also provides $45m of bank guarantee facilities comprising a general $25m bank guarantee facility plus a specific $20m Energex building bank guarantee facility2 The Development MOF facility amortises incrementally across a 3 year period. Mandated step downs comprise $10m in December 2009, $10m in June 2010, $60m in July

2011 and $15m in December 2011. The core $225m portion matures in July 20123 The Property Trust has agreed to use best efforts to repay an additional $50m of debt by 31 December 2009 through asset sales. If at least $35m is not repaid, pricing on

the facility increases by 1% from that date4 Excludes $30m advance from Mulpha FKP joint venture5 Refer to Appendix 6 and 7 for details on the Debt Maturity Profile and Interest Rates / Hedging

FKP has reached agreement for sale of a further $40m of non-core assets, which would reduce drawn debt further. If these agreements

are completed, facilities would reduce by $25m, and headroom

would increase by $15m

These facilities are secured, and are expected to be refinanced subject to

valuation

18

Commitments and Capacity• Between now and March 2011, only $20m of compulsory debt amortisation is required,

$48m of debt maturities between now and December 2009 are expected to be extended (debts are secured)

• Retirement facility due for renewal March 2011. Facility has just been restructured and $375m facility is secured against assets with approximately $1.1b of book value

• FKP has no major development expenditures committed at present other than1:

− Point Cook: $25m (approx) spend between now and early 2010, to be recouped from pre-sales

− Rosebery Stage 2: $15m (approx) spend between now and September 2010, covered by pre-sales

• Assuming the maintenance of existing bank limits and current operating forecasts, the existing headroom is projected as sufficient to fund mandatory amortisation and the following projects:

1. Rochedale

2. Newstead

3. Milton

4. Albion

5. Camberwell

Where projects are staged, the funding comment relates to the first or next stage as the case may be. See slide 27 for more information

on timing and funding requirements

1 Developments over $10m of expenditure

19

Continuing Focus on Cash Flow in FY10

340Residential Land

465Non-Current Inventory

7Industrial

115Residential Apartments

633

3

168

50

22

18

78

$m

Non Current Inventory

Commercial

Residential Apartments

Industrial

Total Current Inventory

Current Inventory

Total Inventory

Residential Land

Commercial

• In the next financial year, FKP has and will maintain its focus upon recycling inventory, expected to lead to a further increase in Cash Flow From Operations. June 2009 inventory is comprised as follows:

Primarily comprised of the major urban renewal sites in the project pipeline (Newstead, Milton, Albion

and Camberwell)

Includes long term master planned community projects (Point Cook,

Rochedale, Peregian Springs, Ridges and Currumbin)

Approximately $90m of inventory has already been sold or pre-sold for FY10, including the Energex building

Energex transaction occurred in July 09 and is reflected in

debt figure shown on slide 15

20

40%44%

47%

52%

0%

10%

20%

30%

40%

50%

60%

31 July 2009 Sensitivity for afurther 10%decrease inasset value

Sensitivity for afurther 20%decrease inasset value

Sensitivity for afurther 30%decrease inasset value

Covenant Limit 55%

Sensitivities

Covenants

1 Assets sensitised include inventories, trust investment properties, and net retirement investment properties and investments

Covenant Gearing Sensitivity

11

• No corporate covenants measured at June 2009. For future covenant arrangements, see Appendix 8. FKP expects to have sufficient headroom under these covenants

• With gearing now further reduced below levels indicated in the Entitlement Offer, FKP is even better positioned to withstand any further falls in asset values

Greater headroom available against possible asset value

decreases than at the time of the Entitlement Offer

1

21


22

Retirement Division Status

10%8%Portfolio Turnover (based on sales)

28%29%Average DMF Rate of Existing Contracts

$1.6b$1.8bUnderlying Property Value 2

81.581.9Average Age of Residents

$29.0m$16.7mNew Sales Revenue

50%

$31.7m

Jun 08Jun 09Key Statistics (FKP Balance Sheet Portfolio)

50%

$30.1m

Average Capital Gain Share of Existing Contracts

Cash Earnings from DMF / Capital Gain

• Retirement saw a strong rebound in 2H, particularly the final quarter

• 2H re-sales were up 17% in volume terms and 37% in dollar terms on 1H

• 6% average portfolio price growth during the year

• Average resident age and average DMF rate continue to increase

1 RVG also has villages in New Zealand which are not managed by FKP

2 Includes development stock

10,238

224

4,030

5,988

Existing

1,940

257

680

1,003

Pipeline

12,178Total

481Managed for Syndicates

4,706Managed for RVG 1

6,991On FKP Balance Sheet

TotalAveo Units (Jun 09)

See Section 6 for an analysis of retirement profitability and cash flow

23

0

2

4

6

8

10

12

4 Qtr FY08 1 Qtr FY09 2 Qtr FY09 3 Qtr FY09 4 Qtr FY09

Retirement Division Outlook• Sales activity was strong in the final

quarter of FY09 and has continued on at the start of the new year

• Budgeting for significant lift in cash DMF / capital gain in FY10 – currently on track to meet first quarter budget

• The chart on the top right shows deposits at the end of the period. Deposits held in July 2009 are approximately 80% higher than 12 months ago

• The chart on the bottom right shows the improving trend in total DMF and capital gain received by FKP

Total Deposits 1

1 Number of deposits held at end of period across FKP balance sheet portfolio

Cash DMF and Capital Gain Trend

$m

40

50

60

70

80

90

100

110

120

Jul 08 Jan 09 Jul 09

24

Retirement Division Assets at June 2009

1,122FKP Balance Sheet Retirement Assets 3

1Bed licences (Intangibles)

31Investment in syndicates (Equity-Accounted Investment)

13Nursing homes (Property, Plant and Equipment)

975NPV of annuity streams (discount rate of 12.5%)(shown on balance sheet under Investment Properties, see Appendix 4)

26

76

$m

New units available for first occupancy (Investment Properties)1

Retirement Division Assets 2

Retirement properties under construction (Property, Plant and Equipment) SOTP valuations often

consider only the value of the annuity streams, but the

division has material additional “hard” assets

See Section 6 for a discussion of valuation

parameters

1 Includes refurbished buyback stock2 Refer to Appendix 9 for further details of the Investment Property Assets3 Excludes working capital accounts

25

Development Division Status

Revenue & Margin Summary 1

• Major achievements were completion and sale of TAC building and agreement for pre-sale and fund through of Energex building (settled post-balance date)

• Other than Rosebery, no other significant projects currently under construction

• FY09 focus was on realisation of completed inventory. Will continue in FY10 with completed stock available at Horton, Mackay, Lexington, Campbelltown, Warriewood and Brookvale

• Margins fell due to a willingness to meet the market on inventory realisation

• Management structure altered for FY10, with apartment developments transferring across to Residential and Communities division. New Commercial and Industrial division created

1 Excludes contribution of construction revenue and gross profit

166

227

0

50

100

150

200

250

FY08 FY09

$m

19% margin

7% margin

26

• The major urban renewal projects have been or are being reconfigured to maximise allowable site density and allow greater weighting towards residential

Development Key Project Outlook

• Scheme has been reconfigured to increase the residential component and facilitate staged development$200mAlbion

Camberwell

Milton

Newstead

Location

• Revised FKP masterplan recently received preliminary approval to increase the overall density to 185,000sqm

• In discussions with council regarding approvals for next stage, a proposed high rise residential building of 180 apartments

• Anticipated development approval in 2010

$950m1

• Enhanced project scheme reconfigured into single tower adjacent to railway station

• Development approval application lodged with council in June for 300 unit (predominantly residential) building

$200m

• Approval for amended 144 unit residential development received from VCAT in July 2009

• Current intention to launch to market in late 2009 with construction to commence in mid-2010

$150m

StatusEstimated End Value

(Life of Project)

1 Excluding Energex building

27

Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13

Construction Time Period2

Camberwell

Milton

Albion

Newstead

Major Development Schedule• Although timing of project commencement may vary depending upon approvals and

pre-sales levels, the chart below gives an illustrative view of the possible staging of the major development projects, construction timeframes and the funding impacts

Maximum indicative cumulative outlay of $240m

by March 2012 1

1 Refers to cumulative outlay from this point and excludes future interest2 Where projects are staged the construction period refers to the first or next stage as the case may be

28

Land Division Status• Of FKP’s master planned communities,

only Peregian Springs / Ridges contributed to FY09 results

• Operating result impacted by reduced demand from second/third home buyers and from investors (Peregian Springs / Ridges not targeted at first home buyers)

• Approximately 70 settlements

• Limited scope for englobo sales as buyers impacted by tight credit markets

• Result has been fall in revenue and to a lesser degree margin

• Anticipating improved performance from Peregian Springs/ Ridges in FY10

• Strong level of buyer interest for Point Cook with >200 pre-sales

Revenue & Margin Summary

78

18

0

10

20

30

40

50

60

70

80

90

FY08 FY09

$m

55% margin

47% margin

1 FY08 includes revenue from englobo sales

1

29

Key Projects Overview

10 years2010500~ 300Currumbin, Gold Coast

10 years +Selling1,450~ 700Peregian Springs /

Ridges, Sunshine Coast

Pre-selling

Selling

Sales Release

Rochedale, Brisbane

Point Cook, Melbourne

Location

8 years1,100~ 400

10 years +2,3001~ 600

Approx End Value ($m)

Estimated Remaining Project Life

RemainingLots Approx.

• Additional stages at Peregian Springs and Ridges continue to be developed

• Construction work at Point Cook has commenced while planning and development approvals for Rochedale and Currumbin continue to be progressed

1 Approximately 200 lots have been pre-sold

30

Point Cook Case Study

• Acquired in 2006 as part of FKP’s Wilbow purchase

• Located 20 kms southwest of the Melbourne CBD

• Master planned community of approximately 2,300 lots

• Development will also include a retail centre, a lifestyle facility and 52 hectares of open space and parkland

• Civil construction work commenced in June 2009

• Initial stages expenditure funded by dedicated financing facility

• Approximately 230 lots have been progressively released across the first four stages

• Strong level of buyer interest with >200 pre sales

• Initial stages expected to contribute in second half of FY10

31

Innisfail (Peet & Co)

Status: Now Selling

Lots Remaining: 303

Featherbrook (Central Equity)

Status: Now Selling

Lots Remaining: 250

Alamanda (Villawood)

Status: Now selling

Lots Remaining: 680

Saltwater Coast

(FKP Property Group)

Status: Now Selling

Lots Remaining: 2,300 1

Sanctuary Lakes (Links Living)

Status: Now Selling

Lots Remaining: 385

Williams Landing (Cedar Woods)

Status: Now Selling

Lots Remaining: 2,120

Stockland (recent acquisition)

Status: In Planning

Yield: 1,300

Point Cook Case Study (cont)

1 Approximately 200 lots have been pre-sold

32

Funds Management Division Status• Investment environment has not been

conducive to the launch of new property funds management products

• Focus has solely been on managing the existing portfolio of assets

• Executing repositioning strategies on a number of properties within the Core Plus funds

• Core Plus Fund capital positions stable. All properties externally valued at June 2009 and debt is within LVR

• RVG was recapitalised during FY09, and in common with the FKP portfolio it is now seeing an improved trend in operations

FKP Property Trust

Retirement Villages Group

Core Plus Fund

Core Plus Fund Two

Total Funds Under Management - $2.0b 1

1 FKP is joint fund manager with a 50% interest in the Retirement Villages Group fund manager

33

57

3732

7

5

$0m

$10m

$20m

$30m

$40m

$50m

$60m

$70m

Assets Debt Facilities Available Drawn Debt

Current Available LVR: 65%

Current Actual LVR: 56%

130

75

56

25

19

$0m

$20m

$40m

$60m

$80m

$100m

$120m

$140m

$160m

Assets Debt Facilities Available Drawn Debt

Current Available LVR: 58%

Current Actual LVR: 43%

Fund Capital PositionsCore Plus Fund Debt Capacity

Core Plus Fund Two Debt Capacity

Retirement Villages Group (RVG)

• Strengthened fund financial position with recapitalisation in December 2008

− Renegotiation of key terms and covenants of debt facilities

− $235m of additional equity raised from existing investors

Core Plus Funds

• All assets in the Core Plus Funds were independently valued at 30 June 2009

• Post revaluation both funds are within LVR levels and also have further properties that could contribute to the security pool if needed

• Core Plus Two has uncalled equity capacity of $135m

• Debt facilities to mature in 1Q FY11

$19m of undrawn debt available

Fund includes $25m of assets not currently in security pool

$5m of undrawn debt available

Fund includes $7m asset not currently in security pool

34

Funds Management Division Outlook

• Intention to grow the funds management business as market conditions improve

• Immediate focus is to continue to actively manage the current portfolio of assets

• Redevelopment approvals for a number of assets in the Core Plus Funds currently in progress

• Core Plus Fund Two has capacity to examine acquisition opportunities

WALE Profile

Core Plus Fund Two – Asset Allocation

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Vacant 2010 2011 2012 2013 2014 2015 2016+

Core Plus Fund Two Core Plus Fund

Existing Active Core Property

19%

Uncalled Active Core Property Allocation

31%

Uncalled Eligible Developments

Allocation50%Only 19% of Core

Plus Fund Two has been invested

35

Trust and Investments Status

0.70.7US Senior Living Group

2.21.1FKP Core Plus Fund

0.2-Commercial Property Trust No. 11

28.810.4Retirement Villages Group

46.6

0.1

14.6

Jun 08Jun 09Portfolio Investment Operating Profit Contribution ($m)

26.5

0.6

13.7

Total

FKP Core Plus Fund Two

FKP Property Trust

• Property Trust income decreased slightly due to sale of several neighbourhood retail assets during period

• June 2009 Property Trust book values represent a weighted average cap rate softening of approximately 100 bps since June 2008

• Refurbishment work is nearing completion at several office assets and construction completed at Browns Plains Town Centre

• RVG contribution reduced due to reduction in ownership percentage to 16% and subdued 1H trading conditions

• Despite difficult US economic climate the US Senior Living portfolio continued to perform at a satisfactory level – occupancy has remained steady and no impairment to purchase price (in US$)

114.416%3Retirement Villages Group

9.128%FKP Core Plus Fund Two15.715%FKP Core Plus Fund

532.4

30.5

362.72

Book Value ($m)

HoldingPortfolio Investments

50%

100%

Total

US Senior Living Group

FKP Property Trust

1 Trust disposed of its sole asset and fund has been wound up2 Refers to book value of investment properties as per

Appendix 103 Where investments are less than 100%, book value shown is

value of FKP interest

36

Property Trust and Investments Outlook• Continue Property Trust asset sales of non

core neighbourhood retail centres to further reduce debt levels

• Management focus on leasing profile

– Clarence St and Bridge St Sydney office refurbishments nearing completion completed and are currently being marketed for lease

– Construction of Browns Plains Town Centre retail development completed and lease up in progress

– Vero tenancy at Chatswood set to expire in June 2011, although the building was acquired with renewal and/or repositioning strategies in place

• Major refurbishment work completed – no significant commitments

FKP Property Trust WALE

0%

5%

10%

15%

20%

25%

30%

Vacant FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 FY 16 FY 17+

Current vacancy rate result of new developments and refurbishments which

provide scope for increase in rental income as lease up progresses

37


38

Summary / Outlook• Caution required given the impact of the financial crisis, but FY10 operating

profit expected to be higher through completion of Energex transaction (already achieved, July 2009) and first settlements at Point Cook (expected 2H with > 200 pre-sales already made)

• Cash flow from operations also expected to be higher in FY10

• Land (now absorbed into Residential & Communities) set to re-emerge as strong contributor to profit and cash flow

• Although gearing cut substantially to 28%, FKP will continue to explore avenues to reduce debt and gearing even further (terms agreed onapproximately $40m of non-core asset sales at current time)

• Guidance of 1.0 cps minimum distribution maintained, but will be kept under review depending on results and improved economic outlook

39


40

Overview of Retirement• Everybody knows the “demographic story” – ageing of population and low current

penetration implies strong ongoing demand for retirement product

• Viewed as an alternative asset class but is essentially a large scale proxy for residential real estate

• Residential real estate in Australia has performed strongly over many generations – has shown high combined returns (yield & growth) with low volatility

• Individual investors seeking exposure to residential typically buy one or more houses and apartments and accept a lower cash yield (3% - 5%) than on other forms of property, because of historically proven rates of real growth

• Investing in retirement operators gives investors the opportunity to obtain exposure to existing residential stock on a scale that cannot be accessed elsewhere, and diversified across multiple properties in prime locations. The underlying value of properties in the FKP retirement portfolio is $1.8b diversified across Brisbane, Sydney, Adelaide, Melbourne, Hobart, Gold Coast and Sunshine Coast (with very modest regional presence)

• For property investors, retirement operators provide a means of diversification away from traditional property classes

41

Annual Revaluation

• This is the change in value flowing from any movement in the discount rate – analogous to changes in cap rates on other forms of property

• As this is simply a function of the cycle and can move up or down, FKP treats any change in value through changes in discount rates as non-operating

Non-Operating

• At each accounting period, FKP revalues its portfolio, and divides the movement into two components

• Changes in value from underlying changes at the portfolio level are treated as operating

• Some treat this item as irrelevant because most is non-cash, but it is a tangible increase in the net wealth of FKP analogous to the “wealth effect” that individuals experience on the rising value of their family home or investment property

• The key components of annual operating revaluations are shown on the next slide

Operating

42

Key Drivers of Annual Portfolio Valuation Change – Operating Component

Each year new units, and therefore new annuity streams, are added to the portfolio. This is analogous to increasing the value of a retail centre or commercial property by adding NLA. Also, the value of the annuity streams is improved each year by refurbishments. Many villages are now approaching an age where refurbishment opportunities are presented.

As demand permits, FKP seeks to increase the contract terms for incoming residents. In doing so, FKP increases its future “take” from the rising portfolio value. In 2006, the average DMF rate across the portfolio was 27%. It is now 29%. The capital gain share of 50% has also increased from 46% in 2006. These increases do not generate cash today, but they add to the value of the receivable.

Pool GrowthImproved Contract Terms

Each year about 10% of the portfolio is vacated (a cash-event). The other 90% of residents become one year older, and the associated receivable becomes more valuable in NPV terms.

Retirement price growth is correlated with wider residential growth but with less volatility because it is a needs-based purchase more so than a financial one. This correlation must hold true over the long-term because residents move from general property into retirement villages. Over the longer-term, disequilibrium would arise if retirement properties grew at above or below the rate of change in general residential properties.

Resident AgeingProperty Price Growth

43

Balance Sheet Valuation Drivers• At June 2009 FKP has valued its annuity streams at $975m

• The three most important drivers of retirement village values are

– Projected Price Growth

– Tenure/Turnover and

– Discount Rate

• While these are the largest drivers, it is dangerous to make comparisons of value on these three factors alone, because many other variables influence value to a lesser degree, such as:

– Development assumptions

– Maintenance spending (higher in older villages) and resident/operator contribution mix

– Operating cost assumptions

– Contract term assumptions

– Terminal value assumptions

– Village operating deficits (higher in younger villages)

44

Key FKP Retirement Valuation Assumptions

10.210.3Projected Resident Tenure (years)

5%5%Future Price Growth

12.5%

Jun 09 Jun 08Key Valuation Assumptions

11.5%Discount Rate

5.4SAs

Jun 09Average Tenure (years)

11.4ILUs

10.3Blended Result Across Portfolio

45

Retirement Value DriversProperty Price Growth

• FKP’s projected price growth of 5% is higher than its competitors, which often receive adverse comment

• Such comments appear to assume that all retirement properties in all locations are equal, an implication never made with respect to other classes of property

• Like other forms of investment property, growth potential is influenced by quality and other factors such as:

– Location (FKP is concentrated in Brisbane and Adelaide, which have outperformed Sydney and Melbourne)

– Competition (FKP’s villages are concentrated in capital cities and major urban areas - not regional areas - and competition is reduced)

– Maturity (FKP’s villages are very mature –young villages do not achieve optimum growth rates while new development rates are high)

10 – 20 Years33%

0 – 10 Years7%

More than 20 Years 60%

Gold & Sunshine Coast 19%

Regional Areas4%

State Capitals77%

FKP weighted to capital cities

FKP has mature villages

Virtually all of FKP’s villages are mature so less

competition from new stock

Virtually all of the FKP portfolio is located in key

metropolitan areas where it is very difficult for others to establish competing villages

46

100

300

500

700

900

1,100

1,300

1,500

1,700

1,900

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Retirement Value DriversProperty Price Growth (cont)

• Retirement units must correlate with general residential over the long term

• Since 1980, the CAGR on FKP’s units is below that of any of the four major capital cities, which may be attributed to the impact of extensions and refurbishments adding to the capital value of general residential stock

• There is no evidence that FKP’s retirement growth rate is unsustainable, in fact given the demographic trends and increased refurbishment opportunities, quite the opposite

General Residential Property Price Trend vs FKP reti rement

FKP’s retirement villages have maintained CAGR of approximately 6% p.a. using data that stretches back to 30 years

SydneyMelbourneBrisbane Adelaide FKP

Source: REIA, ABS, FKP

FKP Retirement

Four capital cities

47

Retirement Value DriversProperty Price Growth Sensitivity (cont)

1,532

147

1,385

7%

1,310

147

1,163

6%

1,122

147

975

5%

964

147

817

4%

829Total Divisional Assets ($m)

147Hard Assets1 ($m)

3%Property Growth Sensitivity

682Annuity Streams ($m)

Using 5% growth-rate adopted for

accounting purposes

If actual long-term growth rate is used

• Under accounting standards, retirement villages cannot be valued as a portfolio, but rather they must be valued as the sum of discrete single village valuations

• In June 2008, an external valuation commissioned by FKP suggested a portfolio premium of approximately $60m across all retirement assets on the FKP balance sheet

• At June 2009, valuers have indicated that portfolio premiums are difficult to establish given the difficult financial markets, but a premium may be expected to re-emerge as the economy recovers

1 If different long term growth rates were to be adopted, the value of inventory and development assets might change to a small degree. These possible changes would not be material and are ignored for the purposes of this table.

48

FKP has a very high average age of residents (82 years) and its tenure assumption are related to this fact. Comparing assumptions on tenure between portfolios is meaningless unless the age of the resident pool is factored in.

Retirement Value DriversResident Turnover – Existing Residents

3.26.3Theoretical remaining tenure based on ABS

3.03.0

Industry norm ‘x’ factor – the number of years before statistical life expectancy that residents actually vacate –recognising that the majority of existing residents move to other forms of aged-care

92.489.7Actual life expectancy of existing residents per ABS

4.17.2FKP assumptions

86.2

SAsILUs

80.4Average Age of resident

Existing Resident Pool Projections (as opposed to a ssumption on future residents)

49

Retirement Value DriversResident Turnover – Future Residents

FKP Historical Average Entry Age

Replacement residents in villages tend to be the same age as existing residents for social reasons. A high average age leads to a high entry age and so on. For valuation purposes, FKP assumes a a lower average entry age in future than would otherwise be extrapolated from longer-term trends.

The tenure assumptions for

future residents is 9 years (ILUs) and 4

years (SAs). If growth in the average entry age continues,

this would prove conservative

Current trendline extrapolated

Implied entry age in valuation

60.0

65.0

70.0

75.0

80.0

85.0

<=1985 1986-1990 1991-1995 1996-2000 2001-2005 2006 - 2009 > 2009forecast

50

Retirement Value DriversTurnover Sensitivity

• This table shows sensitivities to the June 2009 valuation arising from different assumptions on the tenure of future resident intake

• No sensitivity is appropriate for existing residents since these are actuarially determined on a resident by resident basis1,1221479759.0 / 4.0

1,06414791710.0 / 4.0

1,1911471,0448.0 / 4.0

1,3481471,2017.0 / 3.0

795

Annuity Streams

($m)

147

Hard Assets 1

($m)

94211.0 / 5.0

Total ($m)

Turnover ILUs / SAsSensitivity (years)

1 If different turn over rates were to be adopted, the value of inventory and development assets might change to a small degree. These possible changes would not be material and are ignored for the purposes of this table.

Assumption adopted for accounting purposes

51

Retirement Value DriversDiscount Rate

• As with property growth, it should not be expected that all retirement villages would have the same discount rate any more than all commercial properties should have the same cap rate

• Village quality, location and maturity are all relevant in determining discount rates

• FKP’s villages are overwhelmingly in reduced competition capital city locations

• The high average age of FKP residents implies that projected cash receipts are relatively closer to collection point – a lower risk proposition

• FKP’s assumptions were borne out by external valuation at Jun 08 and the Jun 09 Directors valuation has eased the discount rate by 100 bps cumulatively

1,06414791713.0%

865

975

1,038

1,107

Annuity Streams

($m)

147

147

147

147

Hard Assets 1

($m)

1,01213.5%

1,12212.5%

1,18512.0%

1,25411.5%

Total ($m)

Discount Rate Sensitivity

1 If different discount rates were to be adopted, the value of inventory and development assets might change to a small degree. These possible changes would not be material and are ignored for the purposes of this table.

This matrix shows the impact on division assets of a change in the discount rate, keeping other assumptions constant

52

0

1000

2000

3000

4000

5000

6000

No. of units

Retirement Occupancy AnalysisAvailable for

traditional resale1.3%

Resident vacated, but DMF still accruing

2.2%

Residents in place88.3%

Unsold development stock2.2%

Units being refurbished

3.0%

Units withheld for total village for redevelopment

0.7%

Units not available for sale (eg. respite, managers units)

0.5%

A number of competitors publish “occupancy” figures, but there is no consistency in the definitions used. The table on this slide shows the status of different units in the portfolio as at June 2009. The number of units for sale is close to a cyclical high given the difficult trading conditions that applied through most of FY09. Care needs to be taken with “occupancy” because cash is generated on turnover events – a static resident base could produce high “occupancy”but have low frequency of turnover

Refurbished & available for sale

1.8%

53

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

2009 2014 2019 2024 2029 2034 2039 2044 2049 2054 2059

% o

f Pop

ulat

ion

Age

d 75

+

--

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

Est

imat

ed D

eman

d fo

r R

etire

men

t Uni

ts

Industry Outlook• A lot of published data concentrates on projected growth in the 55yo+ or 65yo+ cohorts, but given that FKP’s

residents have an average age of 82, a lot of this data is only of incidental relevance

• ABS projections are that the 75yo+ segment of the population will double in relative strength from 6% to 12% of the population in the next 50 years

• The following table shows that the volume of stock serving this age group would have to rise from approximately 50,000 to 180,000 over that period, assuming no change in the penetration rate

• If the Australian penetration rate increases these figures would be boosted even further

• These projections underscore the massive ongoing investment necessary in retirement just to maintain equilibrium

• Strong demand leads to accelerated price growth, but given that retirement pricing must remain correlated (that is be held back by) changes in general residential pricing, it is more likely that the favourable demographics will be reflected in tightening of discount rates over time

Source: ABS, JLL, FKP estimates

% of population 75+

Demand for Retirement Units

54

Retirement Accounting and Cash Reconciliation FY09

(69.1)

(69.1)

Property Trust

(130.5)

(130.5)

Retirement Non-

Operating

100.5

(51.2)

151.7

Retirement Operating

(51.2)Change in Fair Value of Resident Obligations

(99.1)Net Disclosed in Income Statement

(47.9)

Statutory Accounts Income

Statement

Revaluation within Statutory Accounts ($m)

Change in Fair Value of Investment Properties

3.1Working Capital Reduction

(93.0)Net Non-Cash Component of Operating Revaluation

Less:

13.8Realisation of past period development expenditure

(0.9)Share of Syndicate Profits

42.5Segment Contribution

119.5

Jun 09 ($m)

Cash Flow from Operations

Operating Profit

(130.5)Non-Operating Revaluation Component (Discount Rate)

Less:

(1.1)Site Impairment

(0.3)Depreciation

(13.3)Statutory Segment Note

(0.9)Share of Syndicate Profits

119.5

Jun 09($m)

Profit & Loss

Operating Profit

(4.7)Net movement in deferred income/accrued DMF

(2.8)Cash component (relates to development)

93.0Net Non-Cash Component of Operating Revaluation

100.5

($m)Non-Cash Operating Revaluation

Component disclosed separately in Income Statement

55

Cash Flow from Operations –Retirement FY09

13.2Development Cash flow from Operations

6.3

30.1

(7.1)Other – Includes aged care trading, management fees, change in working capital, all net of overheads

Cash DMF/CG

Represented by:

36.4DMF per Statutory Accounts

Other Resident Receipts

42.5

Jun 09 ($m)

Retirement Cash Flow from Operations

Retirement share of $114.6m Cash Flow from Operations per Statutory

Accounts

DMF/CG per Statutory Accounts is these cash receipts from residents, net of $4.7m increase in deferred income / DMF, equals $31.7m per

Note 2 of Statutory Accounts

Total Cash DMF/CG represents approximately 3.75% yield on

valuation, lower yield than usual because of low-cycle trading in the first 9 months. At Q4 2009 run rate,

yield would be 4.7%

56


57

Appendices

Summary of FKP Property Trust AssetsAppendix 10

Reconciliation of Investment Property AssetsAppendix 9

Bank CovenantsAppendix 8

Statutory (AIFRS) ProfitAppendix 2

Bank Debt Maturity ProfileAppendix 6

Summary of Group Change in CashAppendix 5

Reconciliation of Segment Notes to Divisional Operating ProfitAppendix 3

About FKPAppendix 11

Appendix 7

Appendix 4

Appendix 1

Interest Rates / Hedging

June 2009 Balance Sheet

Non-Operating Items

58

Non-Operating Items

• Non-operating items for the second half of the financial year ended 30 June 2009 resulted in an overall charge to statutory profit of $269.4m prior to tax

• This figure relates largely to impairments of assets, plus a relatively minor amount of non-operating expenses as set out below

1 The after tax is not 70% of the pre-tax because of the impact of the Property Trust assets and some joint venture items, as well as sundries such as options expense

204.6 After Tax 1

269.4 Total Non-Operating Items

Other non-operating items including hedging, options expensing9.5 Other items

Predominately interests in RVG and Norwest JV76.3 Investments

FKP Property Trust assets (updated valuation)48.8Trust investment properties

50 basis point increase in discount rate used to determine fair value63.0Retirement investment properties

Assessed impairment of development and land projects based on DCF of updated feasibilities

71.8 Inventory

DescriptionAmount ($m)Asset

Appendix 1

59

Statutory (AIFRS) Profit

(23.7)Other equity investments write-down

(11.6)Managed funds carrying value adjustment

(18.3)Mark to market of interest rate swaps

(2.4)Non-cash share-based payments under AASB2

(118.0)Development assets impairment

(16.6)Disposal of investments

(319.4)Headline Profit After Tax

78.6Operating Profit After Tax

(1.3)Other

(2.4)Redundancy costs

(67.8)FKP Property Trust asset write-downs

(44.6)RVG investment write-down

$m

(91.3)Non operating write-downs in retirement portfolio (discount rate to 12.5%)

• Impairments and write-downs in line with disclosures in July 2009 Entitlement Offer

Appendix 2

60

Reconciliation of Segment Notes to Divisional Operating ProfitAppendix 3

144.913.823.726.1101.467.8130.5168.5(386.9)EBITDA

16.6

-

(7.1)

-

23.7

-

-

23.7

-

-

-

-

-

Loss on Investment

Disposal

18.3

-

(7.8)

-

26.1

-

-

26.1

-

-

-

-

-

Interest Rate

SWAPs

79.9

-

(21.5)

-

101.4

-

101.4

-

-

-

-

-

-

Share of Equity

Investments

67.8

-

-

-

67.8

-

-

-

67.8

-

-

-

-

Trust Asset Write-downs

91.3

-

(39.2)

-

130.5

-

-

-

-

-

130.5

-

-

Retirement Portfolio

Write-down

-(15.1)-(86.3)Equity Investments

(21.5)(2.5)(50.5)107.1Income Tax

78.66.1118.0(319.4)NPAT

(4.4)(3.7)-(0.7)Minority Interest

(35.0)3.9-(38.9)Unallocated/ Interest Expense

139.58.4168.5(386.9)EBIT

(5.4)(5.4)--Depreciation and Amortisation

11.5

10.1

1.9

1.2

3.4

0.8

Other

-

-

-

1.1

123.2

44.2

Inventory Impairment

(20.5)

26.5

1.9

119.5

14.3

3.2

Operating Profit

Reported Segment

ProfitDivision

(81.8)

(51.4)

-

(13.3)

(112.3)

(41.8)

Other/ Unallocated

Trust and Investments

Funds Management

Retirement

Development

Land

61

June 2009 Summary Balance Sheet

3,772Total Assets

3Intangibles

69PP&E

327Investments

142Cash/ Receivables/ Other

633

2,598

$m

Investment Properties

Assets

Inventories(37)Other Borrowings

(23)Hedge Liability

(2,658)Total Liabilities

1,114Net Assets

(153)Deferred Tax

(197)Payables & Provisions

(1,116)

(1,132)

$m

Resident Loans

Liabilities

Bank Debt

Appendix 4

62

Summary of Group Change in CashAppendix 5

0

50

100

150

200

250O

peni

ng C

ash

Net

Ope

ratin

g C

ash

Flo

wB

efor

e In

vent

ory

Inve

stm

ent

Pay

men

t for

Fut

ure

Inve

ntor

y

Pur

chas

e or

Con

stru

ctio

n of

Inve

stm

ent P

rope

rtie

s

Oth

er

Div

iden

ds a

nd D

istrib

utio

nsP

aid

Cap

ital R

aisi

ng P

roce

eds

Inte

rest

& o

ther

fina

nce

cost

Oth

er D

ebt C

ash

Flo

w

Clo

sing

Cas

h

215

(100)

27

(73)(38)

(90)

125

(71)

7.313

63

Bank Debt Maturity Profile

•No material debt maturities until the Retirement Syndicate facility in March 2011

•All loans are secured

$0m

$100m

$200m

$300m

$400m

$500m

Q1 FY10 Q2 FY10 Q3 FY10 Q4 FY10 Q1 FY11 Q2 FY11 Q3 FY11 Q4 FY11 Q1 FY12 Q2 FY12 Q3 FY12 Q4 FY12 Q1 FY13

Appendix 6

64

Interest Rates / Hedging

80774463

Bank Debt ($m) (1)

6.4%6.7%3.2%

Avg Base Rate

100%93%7%

% of Bank Debt

NA1.7 years

NA

Weighted Avg Maturity

Debt Type

Total / Weighted Av.Fixed Rate Bank DebtFloating Rate Bank Debt

• Average portfolio base rate expected to fall as interest rate hedges continue to expire2

1 Bank debt at 30 June 2009 pro forma for July Entitlement Offer2 Counterparties hold options to extend swaps in some cases. This chart shows a worst case outcome assuming those options are exercised

744

503 475325 325 275 275

80--

200

400

600

800

1,000

Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12

Hed

ged

Deb

t ($m

)

Appendix 7

65

Bank Covenants

• Three key ongoing financial covenants will be measured at corporate level

− Covenant gearing = total liabilities / total tangible assets maximum of 55%1

− Interest cover to exceed2

– 1.5x (12 months to June 2010)

– 1.75x (12 months to December 2010)

– 2.0x (six monthly thereafter)

− Total net tangible assets to be not less than $1.0 billion

− No corporate ICR test applied at June 2009 under any facility

• Facility specific covenants also exist within the retirement syndicate (1.2x cash cover covenant) and General Trust facility (1.3x cash cover covenant for FY10, increasing to 1.4x and 1.5x in the two financial years thereafter). Maximum LVR of 60% under both facilities

1 Adjusted Total Liabilities (total liabilities less resident loans less deferred tax liabilities) divided by adjusted Total Tangible Assets (total assets less intangibles less resident loans less deferred tax liabilities)

2 Measured as the ratio of (i) operating EBITDA adjusted for the net change in fair value of retirements/other investment properties and resident obligations and less write-down of current inventory to (ii) profit and loss interest expense excluding certain one-off fees/payments to lenders

Appendix 8

66

Reconciliation of Investment Property Figure in Statutory Accounts

363Investment properties – FKP Property Trust

2,598Total Investment Properties per Balance Sheet

(2)Straight-lining adjustment

2,237Investment properties – Retirement

76New units available for first occupancy

975NPV of annuity streams

54

1,132

$m

Resident loans

Deferred Income net of Accrued DMF

Appendix 9

67

Summary of FKP Property Trust Assets

8.5024.4RetailQLDBrowns Plains JV8.2536.5RetailQLDBrowns Plains TC

362.7Total

8.2523.5RetailNSWIllawong

7.757.758.008.757.75

8.257.508.007.25

Cap. Rate 30 Jun 09 1

16.0RetailQLDRedbank Plains

26.5Bulky goodsQLDBrowns Plains

11.0RetailQLDIndooroopilly34.0OfficeNSW52 Clarence St

20.3RetailQLDPeregian Springs19.6OfficeNSW17 Bridge St

40.1OfficeVIC399 Lonsdale St32.3OfficeNSW8 Spring St78.5OfficeNSW Vero Tower

30 June 09Book Value ($m)

SectorStateAsset

1 Weighted average cap. rate change of approximately 100bps since June 2008

Appendix 10

68

• FKP is a leading Australian property and investment group

• The FKP strategy of diversification and integration has seen it build a comprehensive property portfolio

• The business capitalises on its proven expertise in development, construction, land subdivision, retirement village ownership and management, property investment and asset management

• Over more than thirty years the portfolio has grown to include mixed use, land, retail, apartments, retirement, industrial and commercial, that today defines how hundreds of thousands of people come together to live, work, play and invest

About FKPAppendix 11

69

About FKP

Retirement

• Leader in Australian retirement village market

• Eighty villages1 in prime locations

• Ability to leverage FKP development and construction capability to effectively manage village stock quality

Investment and Funds Management

• Manager of unlisted property funds specialising in core and value-add property assets

• Direct ownership and joint ventures across commercial, retail and retirement sectors

• Ability to leverage FKP development and construction capability

Retirement Investment and Funds Management

Appendix 11 (continued)

1 35 villages managed for third parties

70

Appendix 11 (continued)

Development and Construction

• A well positioned development pipeline diversified across sectors and geographies

• An experienced integrated construction capability that delivers on targeted projects in the development and retirement portfolios

Land

• Specialist expertise in creating master planned communities

• Strategically placed land estates that provide a pipeline for future growth

Development Land

About FKP

71

DISCLAIMERThe content of this presentation is for general information only. Information in this presentation including, without limitation, any forward-looking statements or opinions (Information ) may be subject to change without notice. To the maximum extent permitted by law, FKP Property Group, its officers and employees do not make any representation or warranty, express or implied, as to the currency, accuracy, reliability or completeness of the Information and disclaim all responsibility and liability for the Information (including, without limitation, liability for negligence).

The information contained in this presentation should not be considered to be comprehensive or to comprise all the information which a security holder or potential investor in FKP may require in order to determine whether to deal in FKP securities. This presentation does 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, uncertainties 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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