This article is from the Australian Property Journal archive
CONTINUED repricing of commercial property assets has erased $6.5 billion from Charter Hall’s (ASX: CHC) juggernaut funds management business and at the same time, put the group in negative territory for FY24.
Charter Hall posted a $222.1 million statutory loss, compared to a profit of $196.1 million in the previous corresponding period. The result included $461 devaluation on investments.
Operating earnings fell 18.7% to $358.7 million from $441.2 million, but the group announced a distribution of 45.1cps, an increase of 6% on the pcp.
Managing director and group CEO David Harrison said the group has focussed on the ongoing curation of the portfolios it manages and closely managing its cost base.
“This has seen us deliver a good result set against a tough real estate environment,” he added.
Charter Hall’s portfolio has not been immune to the devaluations. Group funds under management fell by $6.5 billion to $80.9 billion, consisting of $65.5 billion of property FUM and $15.4 billion of Paradice Investment Management (PIM) FUM.
Property FUM contracted by $6.3 billion, driven by devaluations of $6.1 billion and divestments of $2.4 billion offset by acquisitions of $1.7 billion and capex and development spend of $0.5 billion.
The group’s $1.6 billion of gross equity inflows during the period, comprised inflows of $305 million in Wholesale Pooled Funds, $1.140 billion in Wholesale Partnerships, $11 million in Listed Funds and $148 million in Direct managed funds. Outflows impacting net inflows were predominantly driven by secondary unit sales in pooled funds, where selling demand was met by inflows from existing and new investors.
Harrison said the earnings resilience and diversification of the group’s portfolio continues to remain a key strength, combined with a high-quality tenant covenant profile.
“No single asset represents more than 4% of portfolio investments, government covenants are the largest tenant exposure and make up 29% of portfolio income, whilst 17% of net income is derived from leases with CPI-linked rent reviews, complementing market rent reviews, fixed annual rent escalations and turnover growth driven rental increases,” he added.
Portfolio occupancy was 97.4% occupancy rate with Weighted Average Lease Expiry (WALE) of 7.2 years and the Weighted Average Rent Review (WARR) is an attractive 3.4%, whilst the portfolio cap rate has risen 80 bps to 5.70% over the past 12 months.
Harrison said with evidence emerging of a slowing economy and inflation trends moderating, the group is well positioned to take advantage of a lower interest rate environment as it emerges.
“We see current market pricing as offering attractive long-term returns for stabilised core real estate products and value-add development and opportunistic strategies and it’s our expectation that capital deployment will increase to take advantage of market conditions,” he continued.
Meanwhile analysts recently forecast Charter Hall’s Prime Office Fund will need to undertake up to $850 million in asset sales in the year to reduce its gearing levels.
The sales will likely reduce Charter Hall’s FUM further in the year ahead.
Looking ahead Charter Hall has forecast FY25 earnings of approximately 79 cents per security and distribution growth of 6%.
