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Denison Diversified Property Fund
CEO’s Update Quarterly Update- 31 December 2014
Dear Investors,
Denison Funds Management Limited (‘Denison’) as
responsible entity for the Denison Diversified
Property Fund (‘DDPF’ or ‘Fund’), is pleased to
present Investors an update on their investment in
DDPF. Financial results for the half-year ended 31
December 2014 have been included in this update.
Highlights for the Quarter
 We have had some exciting new leasing activity
totalling over 900 sqm at Blacktown this quarter,
an asset that has previously been challenging in
attracting new tenants. Vacancy has significantly
reduced at this asset, which will be reflected in
next quarter’s metrics.
 Two new leases have been executed at Artarmon
totalling over 1,000 sqm following a pro-active
marketing campaign, significantly reducing
vacancy.
81-85 Flushcombe Road, Blacktown, NSW
Investor Survey
As we commence the New Year, we are once again
seeking investor’s feedback. These surveys provide us
with valuable information on our performance as
fund managers and investors preferences for DDPF’s
strategy. I invite you once again to complete this
short survey. The survey can be completed via our
website or by the attached survey form, which you
can mail back to us with enclosed return envelope.
We are excited to once again be offering Coles/MYER
gift cards to the first 100 respondents of this survey.
81-85 Flushcombe Road, Blacktown, NSW
As always, we will keep Investors updated via
quarterly newsletters and more regular updates on
our activities via our website
www.denisonfm.com.au.
Warm regards,
Matthew Burrows
CEO, Denison Funds Management Limited
Denison Funds Management Limited (ACN 095 920 648) operates under AFSL: 224 663
A. Level 45, 19 Martin Place, Sydney NSW 2000 Registry 1300 935 900 Head Office +61 9222 8222
W. www.denison.com.au E. investors@denisonfm.com.au
DDPF Snapshot
DDPF – Snapshot
Number of Assets
Value of Portfolio
Occupancy Rate
WALE (Area) –Years
Net Assets
Units on Issue*
Unit Price **
Gearing Ratio***
30-Jun-14
31-Dec-14
Asset Snapshot
19
17
$249,100,000.00
$213,700,000.00
90.90%
89.22%
3.30
3.94
Financial Snapshot – 31 December 2014
$48,863,442
$46,294,387
106,182,005
106,182,005
$0.4640
$0.4385
78.40%
76.20%
Change
-11%
-14%
-2%
19%
-5%
0%
-5%
-3%
* Units on Issue are inclusive of the preference units which rank in priority to fully paid ordinary units. The redemption price of the
preference units is equal to the price at time of issue.
** As part of the FARI III Bond, DDPF issued warrants to FARI III that are able to convert to ordinary DDPF units. If exercised, the warrants
will represent approximately 30% of DDPF’s units on a fully diluted basis (based on issued units at the time of exercise).
*** Gearing Ratio - Total Interest Bearing Liabilities / Total Assets
Financial Update
The loss from continuing operations amounted to $2,569,129 for the half-year to 31 December 2014. Adjusting
for non-cash items, including changes in fair value of financial instruments and investment properties and the
sale of investment properties, results in a loss of $2,436,734.
In first quarter of 2014, DDPF finalised the sale of 11 Queens Road, Melbourne and 34-36 Chandos Street, St
Leonards for $27,000,000 and $10,850,000 respectively. The net proceeds from these sales were used to pay
down NAB senior debt and the FARI III Bond. The FARI III Bond is due to mature on 31 December 2015 and as a
result, has been reclassified as a current liability in these financials and will be the focus for the 6 months to
June 2015.
A review of the recent level of borrowing costs as compared with DDPF’s total expenditure has highlighted that
this area presents a cost saving opportunity for the Fund. Given the current level of interest rates and capital
within the market, a refinance of the secured loans of the Fund is at the forefront of the future strategy to
capitalise on consistent growth in the Fund’s NTA since mid-2012. Revaluation of the DDPF portfolio is being
undertaken to facilitate the refinance of Mezzanine and Senior debt positions.
Denison Funds Management Limited (ACN 095 920 648) operates under AFSL: 224 663
A. Level 45, 19 Martin Place, Sydney NSW 2000 Registry 1300 935 900 Head Office +61 9222 8222
W. www.denison.com.au E. investors@denisonfm.com.au
Asset Management Update
Prior to the end of 2014 Denison were successful in
securing several new tenants and renewing existing
tenant leases through focused marketing campaigns.
New Lease Deals
 Blacktown:
− Bridges Financial Services a new 5 year lease
for 125sqm. The lease commenced on 1
February 2015.
− MyBudget for 120 sqm on a 3 year lease
term. The leased commenced on 1 January
2015.
− Life Changing College for 672 sqm on a 5
year lease term. The lease will commence
on 15 April 2015.
 North Sydney: Entered a new 4-year lease with
Global Syndicates for 139 sqm. The lease
commenced on 26 October 2014.
 Artarmon: EP& T new 5 year lease for 550 sqm.
The leased commenced on 1 December 2014.
Stream Group Limited new 5 year lease for 558
sqm. The lease commenced on 15 January 2015.
At the end of September last year the single tenant at
3 Apollo Place, Lane Cove vacated despite Denison’s
extensive negotiations for a lease renewal. The
property is now vacant and this has effected the
Fund’s overall occupancy as noted above. Marketing
to attract new tenants to the building is well under
way and we are working towards increasing the Fund’s
overall occupancy within the next quarter due to the
leasing at Blacktown and Artarmon.
Tenant Incentives
In order to attract new tenants and retain existing
tenants, we have offered tenant incentives that are in
line with market expectations. Although this has an
unfavourable effect on the current Fund cash-flow, the
leasing activity has a value accretive outcome on the
valuation of the building and in turn the Fund.
Capital Expenditure
We continue to improve and maintain the Fund’s
assets and are pleased to confirm the refurbishments
of vacant areas at Blacktown is now complete. The
new tenants are now in operation.
In addition, the installation of the coffee kiosk at
Blacktown has been completed. The added amenity
has been well received by current tenants and we are
pleased to see the operation of the coffee kiosk has
made a welcome addition to the building for tenants.
We have also completed construction of various
storage areas for new tenants at 407 Pacific Highway,
Artarmon.
Market Update
Sydney Suburban
The Sydney Suburban office market continues to
experience strong levels of property investor interest,
resulting in a significant increase in sales over the past
year. By value, total 2014 sales (of asset values over
$10 million) in the Sydney suburban market measured
$1.537 billion. This result is approximately equivalent
to the previous four years combined. Further, the
Sydney suburban office vacancy rate has reduced from
8.8% to 8.1% in the 12 months to January 2015 with
further falls expected over 2015 and 2016.
These positive market outcomes are a result of a lack
of new office developments in the area, as well as the
trending withdrawal of existing office space for
residential-use conversions.
The recent surge in residential house prices is forecast
to be the catalyst for further office stock withdrawals,
for residential and other use redevelopment. These
conversions, coupled with limited new office
developments, low interest rates and high levels of
investor demand may continue to drive strong sales
activity and property values into 2015.
A number of DDPF’s assets, located within the Sydney
suburban region such as Blacktown and Artarmon,
have benefited from these positive market incomes
and we anticipate seeing further improvements in
2015.
Source: Knight Frank Research
Denison Funds Management Limited (ACN 095 920 648) operates under AFSL: 224 663
A. Level 45, 19 Martin Place, Sydney NSW 2000 Registry 1300 935 900 Head Office +61 9222 8222
W. www.denison.com.au E. investors@denisonfm.com.au
Investor Survey
Redemptions
We are once again seeking investor feedback on our
performance as fund managers and the outcomes
investors hope to achieve from DDPF. The attached
survey is an important research tool to establish a
clear understanding of the drivers of our investors.
As you are aware, DDPF is an open-ended fund with
no set term and there is no provision for investors to
redeem their units, unlike listed property trusts on
the ASX.
We strongly urge you to complete this survey and
return it to us prior to 30 April 2015. The survey can
be completed either online via our website or by
completing the attached form and returning to us
with the enclosed return envelope. Your feedback is a
critical element to the next phase of our fund
strategy.
We are also pleased to offer a $25 Coles/Myer gift
card to the first 100 respondents. Once again, we will
publish the results of the survey in our next quarterly
newsletter.
CONTACT US
Registry Services
E. denison@linkmarketservices.com.au
P. 1300 935 990
Denison Funds Management Limited
C/- Link Market Services Limited
PO Box 3721, Rhodes NSW 2138
The last survey expressed that 50% of our investor
base were looking to redeem their holding in DDPF.
We understand from the responses to the survey that
redemptions remain a high priority. As such, Denison
are currently exploring strategies for investors to sell
a portion or all of their units. Accordingly, we note
that given the illiquid nature of DDPF units any sale
would be subject to a discount to NTA in
consideration.
As we explore this strategy, we urge all investors to
please take the time to complete our short investor
survey, as this survey will guide the strategy for DPPF
moving forward.
Head Office
E. investors@denison.com.au
P. +61 2 9222 8222
W. www.denisonfm.com.au
Denison Funds Management Ltd
Level 45, 19 Martin Place Sydney, NSW 2000
Disclaimer: This newsletter contains general information only taken from sources believed to be accurate. The accuracy, adequacy or
completeness of any information and any forward looking statement is not warranted. No account is taken of the needs, objectives
and circumstances of any particular person and liability is not accepted for any decision made in reliance on this information. Past
performance is not an indicator of future performance.
Denison Funds Management Limited (ACN 095 920 648) operates under AFSL: 224 663
A. Level 45, 19 Martin Place, Sydney NSW 2000 Registry 1300 935 900 Head Office +61 9222 8222
W. www.denison.com.au E. investors@denisonfm.com.au