Charter Hall earnings defy virus, as it lifts dividend payout

Charter Hall has released strong guidance as profit soared and its property funds empire passed $40bn.

Charter Hall Group’s bottom line bumped up last financial year despite the pandemic. Picture: Hollie Adams/The Australian

Property funds company Charter Hall has turned in one of the standout results of the profit season and is poised to ride a boom in transactions, as under pressure corporate Australia and governments sell off billions of real estate.

The property group has shrugged off the pandemic and its shares jumped by 6.7 per cent to $12, taking it back to where it traded before the coronavirus hit Australia as it has kept up its frenetic growth in logistics and long-leased assets.

“You’re going to have more corporates getting assets off their balance sheets to reduce leverage and then governments around the world are going to sell a lot more surplus assets, or do sale and leasebacks, because they’ve got to pay for the stimulus they’re providing to the economies,” Charter Hall chief executive David Harrison said.

Mr Harrison said the company was bullish on logistics, and properties with long-term triple net lease in sectors with high land value components, and good liquidity.

Charter Hall said it had $5bn of firepower to take on fresh transactions at a time when some rival property groups are looking to sell assets or companies need to unlock their balance sheet assets.

“Momentum in sale and leaseback transactions continues to grow across corporate Australia and the group is well positioned to take advantage of this opportunity,” Mr Harrison said.

The veteran property chief predicted short-term volatility in office rents and noted vacancy rates had gone up in Sydney and Melbourne but he said both were still “pretty healthy” and he rejected talk of widespread value declines.

Charter Hall delivered a hefty lift in earnings as its property funds empire surged past $40bn and it became one of few property players to release strong guidance, predicting a 6 per cent earnings lift.

The company is keeping up its relentless deal-making, realising its ambition of becoming the country’s largest logistics property group and remaining bullish on office towers.

Charter Hall has an exposure to retail but the bulk of it is in convenience style assets, including petrol stations and neighbourhood centres.

The company generated operating earnings of $322.8m, and on a per share basis this was a 46.3 per cent lift to 69.3c on 2019.

Profit jumped to $345.9m, a 47 per cent rise on 2019, as it dramatically grew the size of its funds platform, buying portfolios from Telstra and other major companies. It has also struck deals with Ampol, Owens-Illinois and Qube.

Charter Hall boosted distributions by 6 per cent to 35.7c per share and says it has more firepower to expand as it raised $5.1bn of equity last year. The company managed $40.5bn of funds at year end, with $1.3bn of growth in July and August.

Mr Harrison said funds under management grew by a third last year. “During the period we successfully launched several new partnerships with investors and new tenant partnership funds with Telstra, BP Australia and post-balance date with Ampol,” he said.

Charter Hall’s model of long-term lease investments backed by global pension funds and listed satellite trusts has allowed it to grow rapidly. “These strong equity flows have translated into continued platform growth. With our ability to source product off-market and through our development pipeline being a key part of the group’s success,” Mr Harrison said.

While Charter Hall was affected by COVID-19 and airline Virgin is shifting out of a Brisbane tower it manages, the impacts have been limited by its focus on high quality tenants in predominantly defensive industries.

The funds manager is also leveraging its position as a supplier of all kinds of space to corporate Australia and has been backing takeover deals where it takes out the property on long-term sale and leasebacks.

Looking ahead, the company said COVID-19 had driven accelerating demand for industrial and logistics assets, which the company had actively pivoted towards.

Small investors are also chasing yield, and flows into Charter Hall direct funds averaged $95m last financial year while at the larger end wholesale pooled and partnership funds continued to see inflows.