Charter Hall Group announced its 1H FY23 results for the period ending 31 December 2022 revealing a -9.1% drop in pre-tax operating earnings and a decline in net equity inflows as the markets adjust to a world of higher interest rates.
Net Equity Inflows for the Group were just $1.08bn for the 6 months, compared to $4.0bn for the year ending June 2022 and less than 50% of the same period last year.
Total Funds Under Management did continue to grow, up 11.2% to $88.0bn, however the Groups’ investment in Paradice Investment Management (PIM) (CHC own 50% of PIM) has shown a loss of $4.2bn in FUM. Charter Hall didn’t elaborate on the performance of PIM in their results.
Charter Hall’s Managing Director and Group CEO, David Harrison said: “Charter Hall Group continues to deliver sector leading returns for investors in our funds. Our focus remains on curating sustainable and resilient portfolios that deliver earnings growth for investors through all market conditions. This focus on performance for our investors and our co-investment alongside them continues to attract capital to the platform. 1H FY23 was no exception, with $2.1 billion of gross equity allotted which helped facilitate $7.9 billion of gross transactions.
“We’ve also delivered over $2 billion of development completions in the last 12 months, providing our investors access to unique investment opportunities in new, purpose-built assets. We remain well placed to continue growing the platform with $6.5 billion in available liquidity, significant opportunities in our sale and leaseback pipeline, our $15.4 billion development pipeline as well as a number of new product initiatives.”
The existing property investment portfolio performed well over the last 6 months, growing by $126m to $3.0bn and generating a 10.4% Total Property Investment Return.
The Group will however face challenges to maintain these returns in the year ahead as market values adjust to a higher interest rate environment, putting downwards pressure on valuations, and as a consequence lower management & performance fees which have been the mainstay of the group for many years.
The Group reaffirmed its FY23 earnings guidance for post-tax operating earnings per security of no less than 90.0cps and a FY23 distribution per security guidance of 6% growth over FY22.
Property Investment
During the period, the Property Investment portfolio value increased by $126 million to $3.0 billion and generated a 10.4% Total Property Investment Return.
The earnings resilience and diversification of the Property Investment portfolio continues to remain a key strength. No single asset represents more than 5% of portfolio investments, Government covenants are the largest tenant exposure and make up 19.9% of portfolio income while 16% of net income is derived from leases with CPI-linked rent reviews.
Portfolio occupancy remained strong at 97.4%, the Weighted Average Lease Expiry (WALE) remains healthy at 7.7 years and the Weighted Average Rent Review (WARR) is a high 3.7%.
Funds Management
Group FUM grew by $8.1 billion to $88.0 billion, consisting of $73.0 billion of Property FUM and $15.0 billion of Paradice Investment Management (PIM) FUM.
Property FUM grew by $7.3 billion, or 11.2%, driven by $4.3 billion of net acquisitions, positive revaluations of $0.3 billion and capex spend predominantly on developments of $2.7 billion.
The Group’s $2.1 billion of gross equity inflows allotted during the period, comprised of inflows of $547 million in Wholesale Pooled Funds, $1.2 billion in Wholesale Partnerships, $5 million in Listed Funds and $296 million in Direct managed funds.
Development activity and pipeline
Development activity continues to drive modern asset creation, enhancing returns which continues to attract new capital to our funds. Development completions totalled $2.0 billion in the last 12 months. Notwithstanding completions, the pipeline continues to be re-stocked and is currently $15.4 billion with $8.0 billion in committed development project value.
The Group continues to use its cross-sector tenant relationships and the scale of its portfolio to create development opportunities for both tenants and investors. The breadth of this market reach generates significant market intelligence thereby enhancing our value-add capacity. Development activity is predominantly undertaken by funds/partnerships with the majority of committed projects being de- risked through pre-leases and fixed price building contracts.
Capital Management
During the period, the Group completed $5.2 billion in new and refinanced debt facilities across the Platform. Platform facility limits exceed $28 billion, with circa $6.5 billion of available liquidity with additional committed and uncalled equity. The Group balance sheet held $367 million of cash as at 31 December 2022, reflecting balance sheet gearing of 3%.
ESG Leadership
Sustainability remains integral to Charter Hall’s operations and management. During the period, we accelerated our commitment to Net Zero carbon emissions2 by bringing forward our target from 2030 to 2025. As part of our commitment, we installed a further 600 Kilowatts of solar during the period, taking our total solar platform to 47.8 Megawatts. We also completed an additional $900 million of sustainable finance transactions linked to the environmental performance and Green Building ratings of our assets.
Further, Charter Hall continues to recognise the important role we play in the communities in which we operate. Aligned to our Pledge 1% commitment, we invested $700,000 in social enterprise and community initiatives, with much of this directed towards funding for communities impacted by floods. We also facilitated 117 employment outcomes for vulnerable Australians in partnership with social enterprises. During the period we were also proud winners of the National Social Procurement Trailblazer Award (in partnership with Two Good) in the 2022 Social Traders National Game Changer Awards.
Outlook
Based on no material adverse change in current market conditions, the Group reaffirms FY23 earnings guidance is for post-tax operating earnings per security of no less than 90.0cps.
FY23 distribution per security guidance is for 6% growth over FY22.
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