DHA Annual Report 2012

Leasing operations

Overview

Sales and leasing activities play a vital role in sustaining a healthy long-term financial structure for DHA. Revenue generated from the sale and leaseback of property continues to be DHA’s primary source of capital. Direct leasing from private owners and negotiation with DHA lessors to renew or extend leases helps to ensure quality, well-located property is available to Defence personnel.

At 30 June 2012, 66% of DHA’s property portfolio (more than 12,000 properties) was managed on behalf of investors. Lessor satisfaction with almost all aspects of DHA sales, leasing and customer service remained consistently high (78% to 99% nationally). This, combined with positive capital and rental growth, has contributed to significant repeat purchases and referrals.

Following a solid overall performance in 2010–11, during 2011–12 DHA focused efforts on managing 2,668 expiring leases to ensure Defence provisioning obligations were met; developing sales and leasing programs and channels; and increasing awareness of the DHA brand. These activities helped confirm DHA’s reputation in the industry as a credible investment option.

DHA’s competitive advantage

While others have attempted to emulate DHA’s turnkey lease product, few can match DHA’s credibility as a Government Business Enterprise, the security of Defence members
as tenants, the standard of property delivered in accordance with Defence guidelines and the diversification of supply offered Australia-wide.

Distinguishing features of the DHA Lease Agreement are:

• a long-term lease (typically 9–12 years, greater when lease extensions are exercised)
• guaranteed rental income during the lease term with rent payable from settlement and no loss of income when Defence tenants change, and
• DHA Property Care services provided during the lease term, comprising:
• property and tenancy management, including periodic inspections, itemised
• statements and a complimentary bill paying service
• organising and covering the cost of most non-structural maintenance, including the repair and replacement of fixed appliances, as required
• annual rent review to market valuation by an independent licensed valuer
• emergency repair, as required, to preserve the property and protect human health, safety and security, and
• restoration at lease-end to ensure the property is returned in good order,
• including professional cleaning, repainting and recarpeting.

Sale and Leaseback program

Each year DHA sells properties to investors under a leaseback arrangement. They have been built or acquired by DHA in locations where housing is needed for Defence members. They meet Department of Defence requirements in terms of rent, size, amenity and inclusions.

In 2011–12, DHA’s marketing campaign focused on its unique selling proposition and the long-term performance of residential property in comparison to other asset classes. More information was made available online and a website refresh is scheduled for 2012–13. DHA also benefited from increased media attention confirming its reputation as a credible investment option.

DHA sales activity focused on private investors, achieving strong sales orders despite decreased general investor confidence and stagnant conditions in some markets. Repeat purchase and referral from existing lessors was consistently high. Cooperative marketing and sales alliances with financial institutions and advisory firms yielded a small number of settlements with these expected to ramp up in 2012–13. DHA also worked to establish an alternative investment option to its conventional sales program. In total, DHA settled sales on 713 properties in 2011–12, generating $324.9 million in revenue and $16.7 million in net profit.

Private leasing programs

DHA undertakes leasing programs to increase housing supply. As with SLB, all properties must meet Department of Defence standards in terms of rent, size, amenity and inclusions; this may include items not considered standard in some locations. Across all facets of private leasing, DHA added 2,259 houses to its Defence portfolio compared to a Corporate Plan figure of 2,100.

In 2011–12, DHA focused on improving overall lease management and its relationship with lessors. The Inside Word seminar series was launched, providing lessors with access to financial services industry experts and an opportunity to speak directly with DHA staff. Lessors Online was also launched, providing lessors with online access to details of their DHA property portfolios, including financial statements, property photos and inspection reports.

Following a successful campaign in 2010–11 to refresh lessor personal and property information, DHA now reviews this data on an annual basis. The accuracy of this information is always important, but especially in the aftermath of natural disasters such as those experienced in 2010–11 and early 2011–12 when DHA was able to provide timely advice to affected lessors and to more effectively manage the repair of disaster-related damage.

DHA continued to focus on increasing the number of lease renewals. This is where an existing DHA Lease Agreement is extended or a new Lease Agreement is negotiated before a current lease expires because DHA wishes to retain the property in its portfolio. During 2011–12, 1,039 leases were renewed.

The DHA Lease Agreement gives DHA the right to vary a lease by extending the term by up to 36 months, or reducing the term by up to 12 months. Each option can be exercised once. During 2011–12, DHA extended the term of 1,073 leases.

Each year, as part of its capital program, DHA leases properties directly from private owners in selected locations. In 2011–12, 147 such leases were negotiated. A new system was implemented to provide better visibility of the direct leasing process and enable specific action plans to be undertaken to increase success.

Lessor satisfaction

DHA undertakes surveys to measure lessor satisfaction. The largest of these is the Annual Lessor Survey which measures satisfaction with ongoing management of leased properties. The results of this survey aid in improving lessor relations and product development.

Since surveying began in 2004, satisfaction with overall property management has consistently been above the target of 90% nationally. In 2011–12, this trend continued with 96% of 1,249 survey participants reporting satisfaction. In addition, 92% of 1,227 participants indicated satisfaction with DHA’s maintenance service; 87% of 1,245 participants indicated satisfaction with value-for-money of the DHA Property Care fee; and 84% of 1,230 participants indicated satisfaction with feedback from annual property inspections.

Nationally, 64% of 1,254 survey participants indicated that they had contacted DHA in the preceding 12 months regarding their property. Satisfaction with all aspects of customer service (accessibility, knowledge, timeliness of response and courtesy and helpfulness of DHA staff) remained high, with results ranging from 87% of 738 participants to 95% of 198 participants respectively.

In 2011–12, survey participants continued to be exceptionally satisfied with all aspects of rental payments (timeliness, accuracy, format and detail of monthly statements) with results ranging from 98% of 1,252 participants to 100% of 1,253 participants respectively.

There was no significant change in satisfaction with all aspects of the annual rent review service (process, outcome, information in the rent review notification), with results ranging from 78% to 88% of 1,250 survey participants nationally. Statistical analysis confirmed a strong relationship between the results of the rent review and satisfaction or dissatisfaction with the process of conducting and notifying lessors of updated rental income.

In 2011–12, survey participants were as likely to recommend investing in a DHA property as they were in 2010–11 (91% of 1,247 participants compared with 92% of 1,619 participants). The likelihood of participants leasing another DHA property decreased slightly in 2011–12 (70% of 1,244 participants compared to 74% of 1,608 participants). The likelihood of participants negotiating a new lease was similar to that in 2010–11 (85% of 1,244 participants compared to 86% of 1,615 participants).

Promotion of leasing programs

www.invest.dha.gov.au

This website is dedicated to the promotion of the SLB program. It sets out leasing arrangements and provides a description, photographs, floor plan and a location map for
each property listed for sale. In 2011–12, prospective investors were able to visit this website and view properties for sale a week before their release date, aiding their decision-making. Prospective investors can also use this website to access tools and information resources and register to receive newsletters and other promotional material from DHA via email.

www.dha.gov.au

DHA’s core website has a dedicated section for private investors to obtain information about its leasing programs. It provides information about private leasing arrangements and includes a list of current requirements by region. Private owners can offer their property to DHA by completing and submitting an online application. Information about the SLB program is provided at www.invest.dha.gov.au. Lessors Online is accessed from this website, giving lessors easy access to details of their DHA property portfolio, including financial statements, property photos and inspection reports.

Advertising and media

Most of DHA’s advertising and media activity in 2011–12 focused on promotion of the SLB product. Mainstream media, including press, radio and online advertising, were the most common channels used.

Despite significant investor demand during the reporting period, DHA undertook a targeted advertising campaign to maintain brand awareness and ensure sufficient future demand. Testimonial and case study advertising of investors’ experiences continued to be a key tool used.

The SLB product enjoyed considerable media attention throughout the reporting period, as the security of DHA’s lease continued to be recognised in comparison to other investments. Publications covering the program on multiple occasions included Money, Your Investment Property and Smart Property Investment magazines.

Targeted advertising was undertaken to attract private owners to lease their property to DHA in locations where it was needed. Newspaper advertising was the channel most
used for this purpose, supplemented with a small amount of online advertising.

Investment seminars

During 2011–12, DHA continued to host investment seminars for prospective private investors in most capital cities and many regional centres throughout Australia. The seminars provided an overview of DHA; residential property as an asset class; the benefits of the DHA Lease Agreement; and how to buy. Highlights of the new seminar presentation were videos of DHA properties and testimonials from lessors. Attendees were able to ask questions of contracted DHA sales consultants and staff and were given a comprehensive information pack.

DHA lessor exclusive events

During 2011–12, The Inside Word seminar series was launched, providing lessors with the opportunity to learn about purchasing property through Self-Managed Superannuation Funds. Events were held in Brisbane, Canberra, Melbourne and Sydney. Lessors enjoyed the opportunity to network, access industry experts and speak directly with DHA staff.