Charter Hall Group has had an impressive year with strong growth on all fronts. Its share price has lifted an impressive 76% from 12 months ago, compared to the AREIT index of just 14%.
The Fund Managers' business is diverse with capital sources and investment destinations spread across all sectors. Charter Hall attracts retail and wholesale capital via listed and unlisted sources, it invests directly and indirectly and across all sectors, now including child care and social infrastructure. It has become all things property.
IN 2019, Charter Hall generated fee revenue from
• Raising $3.4bn across 16 different funds
• Acquired $4.1bn of assets
• Divested $3.3bn of assets
• Managing $30.4 billion of FUM at year-end, with $4.2 billion of FUM growth post-balance date to take FUM to $34.6 billion
• Property Investments up $138 million to $1.8 billion, delivering a 9.1% return for the year
Financial highlights:
• Operating earnings of $220.7 million, or OEPS post-tax of 47.4cps, up 25.5% on the prior corresponding period (pcp)
• Statutory profit of $235.3 million,
• Distributions of 33.7cps, up 6% on pcp
• Total Platform Return of 11.1%
Charter Hall’s Managing Director and Group CEO, David Harrison said: “FY19 was an exceptional year for the group. It was a record year for equity raising, with all sources of equity active and $3.4 billion of new equity inflow across the platform. This then translated into our largest ever year for transactions, with $5.0 billion of gross transactions and $3.3 billion of net acquisitions. The Group also successfully acquired and integrated the Folkestone platform into the Charter Hall business. In addition, our Development pipeline delivered $1.1 billion of completions and continues to grow, forming an important avenue of additional growth for the Group.”
“The net impact of this activity was that Funds Under Management (FUM) grew $7.2 billion to $30.4 billion at year-end 30 June 2019. For shareholders, this translated into 25.5% growth in OEPS and 6% growth in DPS. Over five years, the Group has delivered shareholders an annualised return of 17.3% in pre-tax earnings and 13.4% in post-tax earnings. Importantly, the Group’s momentum has continued into FY20, with a further $4.2 billion of FUM growth year-to-date, with FUM now totalling $34.6 billion.”
Property Investment
During the year, the Property Investment portfolio increased by 8.1% to $1.8 billion and generated a 9.1% Total Property Investment Return .
The earnings resilience and sector diversification of the Property Investment portfolio was further enhanced with an investment into the Social Infrastructure sector via the listed Charter Hall Education Trust, following the acquisition of Folkestone.
The total portfolio occupancy remained strong at 97.7% and the Weighted Average Lease Expiry (WALE) improved to 7.6 years.
The portfolio remains well diversified with an 81% weighting to the East Coast, and the top 10 asset exposures representing only 11.4% of earnings.
The Property Investment Portfolio’s total property return over the five years to 30 June 2019 is 13.3% per annum, outperforming the MSCI/IPD Unlisted Wholesale Property Fund Index which returned 10.8% over the same period.
Property Funds Management
Charter Hall’s fund management portfolio is well-diversified, having grown to 844 properties, 3,419 tenancies, an increased WALE of 8.2 years and delivering more than $1.7 billion dollars of net rental income.
The Group’s managed funds grew by $7.2 billion to $30.4 billion driven by $3.3 billion of net acquisitions ($5.0 billion gross), the $1.6 billion acquisition of Folkestone, positive revaluation of $1.2 billion and capex spend on developments of $1.0 billion.
The Group experienced $3.4 billion of gross equity inflows comprising $1,802 million raised in Wholesale Funds, $219 million in Wholesale Partnerships, $691 million raised in Direct Funds and $692 million in Listed Funds. This equity was deployed into $4.2 billion of strategic asset acquisitions with a further $4.1 billion additional funding capacity available across the platform as at 30 June 2019.
FY19 also saw the Group complete 666 separate leasing deals across over 915,000 sqm of space. Post-balance date, the Group also completed a lease with AustralianSuper at its flagship Melbourne office development at Wesley Place, 130 Lonsdale St. This takes the under-construction office tower’s committed Net Lettable Area (NLA) to 100%, ten months ahead of practical completion.
“Post balance date and taking account of FUM growth year-to-date, the Group still enjoys $3.0 billion of investment growth capacity. This leaves us well positioned to continue growing via our development pipeline as well of taking advantage of strategic opportunities as they arise.” Mr Harrison added.
Value enhancing development pipeline
Development activity continues to drive asset creation and attract capital. Development completions have added over $1.1 billion of FUM in the last 12 months. The development pipeline has grown from $3.5 billion in June 2016 to over $6.5 billion today.
The Group continues to use its cross-sector tenant relationships and the scale of its portfolio to create investment grade opportunities. This generates significant value through enhancing both income yield and total returns for its funds. 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.
Maintaining a strong balance sheet
Capital management remains a key focus with $6.3 billion of new and refinanced debt facilities during the period and no material maturities in FY20. With modest 5.4% balance sheet gearing (net of cash) and look-through gearing of 30.8%, weighted average debt maturity of 7.1 years and $114 million of cash on hand as at 30 June 2019, the Group maintains financial flexibility and substantial funding capacity across the funds platform with $4.1 billion of available liquidity.
Strategy and Outlook
Based on no material change in current market conditions and reflecting FUM growth already achieved in FY20, guidance is for 18-20% growth in post-tax operating earnings per security over FY19.
FY20 guidance also includes $132 million for the CHOT performance fee, payable in April 2020, with $50 million of this amount already accrued in FY19 earnings. When the impact of the CHOT performance fee is removed from both FY19 and FY20 earnings, guidance implies post-tax operating earnings per security growth of 11-13% over FY19. FY20 distribution per security guidance is for 6% growth over FY19. The future distribution payout ratio will be 60-95% of OEPS.
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