Chairman's Report

JOHN SHEEHAN Chairman

I present to shareholders the 2009 Desane Group Holdings Limited Chairman's Report.

The Group's accounts were prepared as required under the International Financial Reporting Standards (IFRS).  The impact of the global financial crisis on Australian property values has resulted in a decrease of the Group's net tangible assets.  Notwithstanding the impact of the devaluation, the Group's operating profit, before the devaluations, has increased.  Therefore, the Directors have decided to recommend a dividend of 2 cents per share (unfranked).

In my 2008 Chairman's Report, I indicated a continuing focus on resources stock which would divert investment funds from the property sector to those stocks.  This trend has now abated, however investment funds have tended to be directed towards financial securities which are the beneficiary of the Commonwealth Government guarantee.  It is of concern that property values have fallen, but it has to be recognised that Australian property, as an investment vehicle, remains much more robust than in other parts of the world.

The commencial and industrial properties held by the Group remain fully let and indeed sought after by prospective tenants.  The reduction in official lending rates has meant that the Company has been able to substantially reduce the interest costs on its borrowings, whilst the return from commercial/industrial properties is at an historic high.  There are continuing indications that the areas of metropolitan Sydney in which the individual properties of the Group portfolio are situated remain sought after by both tenants and prospective purchasers.

The rezoning of the 12,100m2 industrial waterfront complex in Lane Cove to high density residential is drawing closer to approval.  The Directors anticipate that full rezoning approval will be obtained during the 2009/2010 financial year.  The successful rezoning of this property will ensure a significant increase in net tangible assets for the Group.

This financial year, the Group has maintained its rental income from properties held in the Group's portfolio and it expects rental increases in the current financial year.  As previously stated, it is important to note that all available floor space in the Group's rental properties is leased.  The Group has been markedly successful in refinancing debt secured over these properties, an indication of the significant strength of the Group's property portfolio, even in somewhat sobering times.

Your Board is confident that the market for quality, commercial and industrial properties will become more firm, and that capitalisation rates, whilst subdued, still remain remarkably firm for quality property in the commercial and industrial market.  The volatility in the equity markets suggests that increasingly funds will flow into direct property investment, and there is already evidence of this occurring in the retail market especially freestanding shopping centres.

Your Board remains confident that the Group's strategies implemented will result in asset growth for the 2010 financial year, as the property market continues to strengthen as anticipated.  The conservative decision making style of your Board and the professional support of the Group Executive has ensured that all of the properties owned and or managed by the Group are fully leased on a medium to long term basis, to robust quality tenants.  I congratulate both the Group Executive and the employees of Desane Group Holdings Limited for their efforts over the past year in somewhat turbulent times, which have not greatly impacted upon the Company.

 
Finally, I would like to welcome those shareholders who have recently joined the Company. The Board looks forward to a long association with those new shareholders during the coming years.

JOHN SHEEHAN
Chairman