Charter Hall outperforms landlords with $8.5M growth in FUM

Charter Hall outperforms landlords with $8.5M growth in FUM

21 February 2020

Charter Hall has upgraded its earnings, profit and distributions for 2020, as the property fund approaches $40 billion in funds under management (FUM).

Charter Hall’s Managing Director and Group CEO, David Harrison said “This active 6-month period for the Group has driven FUM growth of $8.5bn. Importantly, this growth has been achieved while maintaining returns for our investor customers and through continued partnership with our tenant customers.

“During the period we successfully launched several new partnerships with investors and new tenant partnership funds with BP Australia and Telstra. This emphasis on partnering with our tenant and investor customers has been rewarded with strong equity flows across all equity sources.

“Strong equity flow has translated into strong transactional activity. Our ability to source product offmarket and through our development pipeline is a key part of the Group’s success.

“For securityholders, this has translated into EPS growth, with 1H FY20 OEPS of 48.5c, whilst our $38.9 billion FUM platform drives recurring funds management revenue. Our upgraded guidance for FY20 is 40% earnings growth per security over FY19.”

The fund manager has consolidated its position as a major outperformer in the commercial real estate sector this half, with operating earnings hitting $225.8 million, or 48.5¢ a share, up 110 per cent.

“There’s no doubt the capital-light model that Goodman and Charter Hall have got, where we can generate growth from the funds management platforms, is going to continue to outperform the rent collectors,” Charter Hall chief executive David Harrison said.

“If you’re outperforming your return hurdles and delivering above expectation for your investors they are going to give you more capital. So the performance at a fund or partnership level is obviously highly-correlated to the potential to get new equity,” he said.

Charter Hall — like many other REITs — has benefited from several interest rate cuts last year as investors looked for strong yields relative to bonds.

In the first half of the financial year, Charter Hall acquired $2.45 billion of office properties including two major assets  the Telstra Exchange building in Melbourne and a stake in Chifley Square in Sydney – as well as $1.25 billion worth of long-lease assets, including a stake in a portfolio of 225 BP convenience retail properties.

“Clearly, when interest rates fall, and the cap rate or yields on property don’t fall by as much, which is what’s happened for the last five years, then you’re going to continue to get strong demand because the spread of yield to debt costs or the spread of yield to the bond yield is quite wide. But that’s only helpful if your portfolios have sustainable income growth,” Mr Harrison said.

“We’ve been very clear, transparent and vocal in the last 10 years around the growth of long WALE (weighted average lease expiry) real estate in all sectors and you’re starting to see that play out,” Mr Harrison added.

Development activity continues to drive asset creation and attract capital for the group. Development completions have totalled $568 million of FUM in the last 12 months and their $6.8 billion pipeline continues to be re-stocked.

“I’ve got 15 per cent of growth in front of me, not by buying any more assets but just developing out our own office and industrial pipeline,” he said.

Investors responded by driving up the company’s shares by 92c to $14.03 on Wednesday, with chief executive David Harrison saying the “bow wave” effect of rising funds under management, rising asset values and a larger development workbook, as well as higher investment earnings, were boosting the company.