Charter Hall reveals $4bn of firepower as it lifts guidance

Charter Hall has flagged that it has more than $4bn of firepower and could launch new vehicles for pension funds.

Charter Hall CEO David Harrison. Picture: Hollie Adams

Charter Hall has flagged that it has more than $4bn of firepower and could launch new vehicles for pension funds that are pouring capital into Australia as its property funds empire heads past $40bn.

Charter Hall surprised the market by lifting fiscal 2020 guidance for post-tax operating earnings per security growth from about 30 per cent over the 2019 fiscal year to a huge 40 per cent mark.

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.

The quantum of growth smashes previous pre-global financial crisis records for earnings growth and displays the split in the sector between tearaway property funds groups and sluggish traditional landlords.

Charter Hall is also upping its development ambitions, building out existing properties for its growing roster of blue-chip tenants and handling their office, industrial and retail property requirements.

Charter Hall’s guidance includes $98m for a performance fee on its main office fund, in addition to the $50m it recognised last year.

The property funds company is sticking to fiscal 2020 distribution per security guidance of 6 per cent growth over last year.

After a busy first half in which it snapped up a series of office, logistics and long-leased retail property portfolios, the company turned in operating earnings of $225.8m for the first half that on a per share basis post-tax leapt by 110 per cent to 48.5c.

Charter Hall is well positioned to expand after raising $3bn of ­equity and garnering $2.9bn of inflows into its products.

The company now manages $38.9bn and, by lifting its funds ­empire by $8.5bn in the last six months, has signalled its intentions to grow even as parts of the property cycle shows signs of peaking.

Mr Harrison said growth had been achieved while maintaining returns for its fund investors, as they were also benefiting from new developments.

“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,” he said.

The strong equity flows have also backed the company’s strong deal flow and Mr Harrison pointed to the company’s ability to source product off-market and via developing new stock.

Despite high-profile deals, including taking control of Sydney’s Chifley Tower and Plaza, a key differentiator from many landlords is that the top 10 asset exposures represent only 6 per cent of earnings. Charter Hall’s fund management portfolio also has more than 4000 tenancies.

Mr Harrison said Charter Hall had $4.1bn of investment growth capacity. “This leaves us well positioned to continue growing via our development pipeline as well as taking advantage of strategic ­opportunities as they arise,” he said.

He also called out the likelihood of more major sale and leaseback deals as major corporations and governments looked at their balance sheets.

Mr Harrison said that, despite the slowing economy, there was an imbalance with more offshore capital chasing local stock than was available, which would see capitalisation rates fall.

While the recent bout of growth has been organic, the company made a play for the Australian Office Fund and Mr Harrison predicted that companies with ­access to capital and a growth mentality would prosper this year.