As a Funds Management company with limited direct investments, Charter Hall has built a diverse platform of funds over its 30 year history.
With over $52bn in funds under management, the Group continues to dominate in key markets in Australia. The Group’s initial focus across the Office, Retail and Industrial sectors become more targeted over the years to Industrial & Logistics assets, Long WALE Retail assets, Office assets, Social Infrastructure assets and Shopping Centre assets. Two thirds of the Groups funds are in wholesale unlisted equity funds, with 20% in listed structures and 15% in direct structures. Real Estate is a long term game and Charter Hall learnt quickly that assets with long term tenures to reputable tenant covenants will always attract stable capital if managed well. Currently 49% of the Groups FUM is in assets with Weighted Average Lease Expiries (WALE) in excess of 10 years.
For FY21 Charter Hall reported a statutory profit of $476m, up from $345m in FY20, however most of the gain was from valuation movements in its direct holdings. The Group’s earnings fell -11% from FY21 to $284m, as significant one off performance fee revenues in the FY20 period were not present in FY21, accounting for $137m in difference. Excluding Performance Fees, Operating Earnings were up 83%.
Charter Hall’s Managing Director and Group CEO, David Harrison said: “FY21 is Charter Hall’s 30th anniversary year and its 16th as an ASX listed Group. As we celebrate our 30th anniversary, we are proud to have created an Australian Funds management business of scale by global standards, but most importantly we have generated record fund inflows, gross transactions and FUM growth of $11.7 billion in FY21, whilst generating sector leading returns for our investor customers and shareholders. Since our formation, we have always been a custodian of other people’s capital. Fund management is in our DNA. Our success as a business is built upon partnering with our tenant and investor customers to drive mutually beneficial outcomes with a razor-sharp focus on being customer centric.”
“This partnership approach generated $5.3 billion of gross equity inflows, with all equity sources recording strong inflows. FUM grew 29% as our strategy of securing long-leases with best-in-class tenants continued to drive returns for investors. We transacted on a record $10.1 billion of assets, successfully deploying our investment strategies both on and off-market. Sale and leaseback transactions represented over 40% of our transaction activity as we continue to partner with tenants and investors to unlock investment opportunities. Our develop-to-core strategy also saw us deliver over $1 billion in development completions.”
David Harrison said, “As we begin FY22, we are well positioned with $6.7 billion of investment capacity to deploy into our $8.8 billion development pipeline, which will be further advanced with continuing equity inflows. We remain excited about partnering with our tenants and investors to ensure on-going mutual success.”
Charter Hall’s FY22 earnings guidance is for post-tax operating earnings per security of no less than 75.0cps and for distributions to grow 6% on FY21.
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The REIT commenced the year with a security price of $9.69 against a NAV of $4.28 (126% premium to NAV due to high funds under management) and closed the year at $15.52. The REIT provided a 37.9c distribution for FY21, equating to a 3.9% yield, which together with a 60% lift in unit price would provide investors with a total return of 64%.
Key financial and operational highlights for the period are:
Financial highlights:
- Operating earnings of $284 million, or 61 cpu, down -12% on the prior corresponding period (pcp)
- Statutory profit of $476 million, up 37.8% on pcp
- Distributions of 37.9 cpu, up 6.2% on pcp
- NTA of $4.91, up 14.7% from $4.28 at 30 June 2020
- $5.3bn in equity deployed
- $11.2bn of growth in FUM
- $8bn in Acquisitions & $2.1bn in divestments
Operating highlights:
- Portfolio weighted average lease expiry (WALE) of .9.1 years (up from 8.6yrs in pcp)
- $52.3bn property portfolio, up from $40.5 billion as at 30 June 2020
- Portfolio cap rate firmed 48 bps from 5.27% as at 30th June 2020 to 4.79%
- $1.0bn in development completions with $4.4bn in committed projects and $43.bn in uncommitted projects
Portfolio update
Property Investment
During the year, the Property Investment portfolio increased by 18.8% to $2.4 billion and generated a 15.0% 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, whilst we have grown the portfolio weighting to East Coast markets to 83% of our investment portfolio.
Portfolio occupancy remained strong at 97.4% and the Weighted Average Lease Expiry (WALE) increased from 8.7 years to 9.1 years.
Property Funds Management
The Group’s managed funds grew by $11.7 billion to $52.3 billion, or 29% growth in FY21, driven by $5.9 billion of net acquisitions, positive revaluations of $4.1 billion and capex spend predominantly on developments of $1.8 billion.
The Group’s $5.3 billion of gross equity inflows deployed continues the momentum of recent years, comprising inflows of $2.1 billion in Wholesale Pooled Funds, $1.4 billion in Wholesale Partnerships, $659 million in Listed Funds and $1.1 billion in Direct managed funds.
Development activity and pipeline
Development activity continues to drive asset creation and attract capital. Development completions totalled $1.1 billion in the last 12 months. Notwithstanding completions, the pipeline continues to be re- stocked and has grown to $8.8 billion.
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. 94% of Industrial and Logistics and 66% of Office development WIP is pre-leased as at 30 June 2021.
Capital Management
Capital management remains a key focus. During the year, the Group completed $9 billion of financings in managing the more than $20 billion of debt across the fund portfolio and was an active issuer in the domestic and foreign capital markets. In April 2021, the Group issued $250 million Australian dollar medium term notes with a ten-year maturity, securing additional funding capacity, extending the Group’s weighted average debt maturity and diversifying debt sources. The Group maintains financial flexibility and substantial funding capacity across the fund’s platform with $6.7 billion of available investment capacity and in excess of $500 million at the Group’s balance sheet.
Strategy and Outlook
Based on no material adverse change in current market conditions, FY22 earnings guidance is for post-tax operating earnings per security of no less than 75.0cps.
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