Charter Hall’s Growth Brings Pressure25 February 2022
Charter Hall Group’s results released this week show a strong diversified business however in comparison to its’ peers, the Group is under some pressure to lift its performance further.
Charter Hall delivered operating earnings of $263.9m, up 104% on the prior corresponding period leading to a 6% higher distribution of 19.7cps. However, whilst the AREIT Index has fallen -8.7% since mid December 21, Charter Hall has fallen by -20%, and currently trading at $16.66.
Charter Hall’s acquisition of a 50% interest in Paradice Investment Management (PIM) in mid December for around $200m was viewed poorly by the market and led to the deterioration in the pricing of the business. The FUM in PIM are just short of the total value of the Industrial & Logistics portfolio of Charter Hall but are unlikely to deliver anywhere near the same revenue.
It has however been David Harrison’s long held view that to continue to grow, Charter Hall must push into other investment sectors, and he’s holding to the view.
Speaking about the half year results, David Harrison said: “Charter Hall’s strategy of partnering with tenant and investor customers continues to deliver strong returns for securityholders. Investors continue to endorse our investments in long WALE strategies and look to benefit from our ability to access off-market opportunities. The current period has seen us experience strong inflows across our strategies, with $2.8 billion of gross equity allotted. We’ve also successfully deployed $5.4 billion in acquisitions across 18 funds and partnerships, a record 6-month period. Importantly, our development pipeline continues to grow and now stands at $13.2 billion, providing valuable opportunities to deploy our investment capacity into new product.
“During the period we also created a new partnership with a 50% investment in Paradice Investment Management. This partnership expands our Funds Management capability and allows us to service investor customers across multiple equity segments. We see good opportunities to grow the PIM partnership utilising our large retail investor community and our strong wholesale investor relationships.
“With investment capacity of $6.7 billion across the platform, continued strong demand from capital partners to deploy equity, a growing development pipeline and significant retained earnings, we continue to see a strong pathway of growth for the group.”
- Operating earnings of $263.9 million, or OEPS post-tax of 56.6cps
- Statutory profit of $517.8 million, after tax attributable to stapled securityholders
- Distributions of 19.7cps
- Return on Contributed Equity of 24.4%
- Access: $2.8 billion of gross equity allotted
- Deploy: $6.8 billion of gross transactions
- Manage: $79.5 billion of FUM at 31 December 2021, with $61.3 billion of Property FUM and $27.2 billion of FUM growth in the 6-month period
- Invest: Property Investments up 18% or $432 million to $2.85 billion, delivering a 25.5% return
During the period, the Property Investment portfolio increased by $432 million, or 18% to $2.85 billion and generated a 25.5% 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 make up 20.1% of net income and the portfolio enjoys 3.3% fixed annual rent reviews while 24% of net-income comes from inflation-linked leases.
Portfolio occupancy remains strong at 97.4% and the Weighted Average Lease Expiry (WALE) is 8.6 years.
Charter Hall continues to advance its sustainability initiatives across the platform. During the period, the Group completed $1.3 billion of sustainable finance transactions linked to the environmental performance and Green Building ratings of its assets. Charter Hall made strong progress in its commitment to Net Zero by 20302, advancing a solar energy rollout with 46 Megawatts of solar PV installed across the platform, a 5 megawatt increase since June 30, 2021.
The Group remains on track for 100% of operations to be supplied by renewable energy by 2025. 61% of operations are now powered by grid supplied renewable electricity, up from 21% since June 30, 2021. Combined solar, grid supplied renewables and operational efficiencies have delivered a 47% reduction in emissions intensity since FY17.
Further, Charter Hall continues to recognise the important role it plays in the communities in which they operate. During the period, Charter Hall donated 55,900 COVID-19 vaccinations to underprivileged countries through UNICEF’s “Give the world a shot” program, while partnering with Food Bank to feed 7,500 families impacted by COVID-19 with food for a week. Charter Hall is also announced their Reconciliation Action Plan and are actively working on building relationships and capacity with First Nations businesses.
The Group’s managed funds grew by $27.2 billion to $79.5 billion, or 52% growth in the half, driven by Property FUM growth of $9 billion or 17.2%. The Paradice Investment Management (PIM) partnership represents $18.2 billion of new FUM in the period.
The Group’s $2.8 billion of gross equity inflows allotted continues the momentum of recent years, comprising inflows of $650 million in Wholesale Pooled Funds, $801 million in Wholesale Partnerships, $632 million in Listed Funds and $672 million in Direct managed funds.
Development activity and pipeline
Development activity continues to drive asset creation and attract capital. Development completions totalled $1.2 billion during the last 12 months. Notwithstanding completions, the pipeline continues to be re-stocked and has grown 50% to $13.2 billion in the last 6 months.
The Group continues to use its cross-sector tenant relationships and the scale of its portfolio to create development opportunities. This reach and development capability generates significant value through enhancing both income yield and total returns for our 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. 88% of Industrial and Logistics and 78% of Office committed development projects were pre-leased as at 31 December 2021.
Capital management remains a key focus. During the period, the Group completed $9.4 billion of financings in managing the more than $23 billion of debt across the fund portfolio. The Group maintains financial flexibility and substantial funding capacity across the fund’s platform with $6.7 billion of available investment capacity3 including $429 million at the Group’s balance sheet.
The Group’s previous FY22 guidance provided 13 December, 2021 was for post-tax operating earnings per security (OEPS) growth of no less than 105 cents per security (cps).
Based on no material adverse change in current market conditions, FY22 guidance is for post-tax operating earnings per security of no less than 112 cents.
FY22 distribution per security guidance is unchanged at 6% growth over FY21.