Charter Hall seeks to defy property slowdown with funds growth

The group flagged growing opportunities in logistics, convenience and social infrastructure, as its operating earnings beat market expectations.

Charter Hall Group chief executive David Harrison

Property funds group Charter Hall has turned in solid operating earnings of $441.2m and says its real estate empire can keep growing despite the tough conditions prevailing in commercial markets.

The group said it was well positioned and had $7bn of liquidity to revamp its fund portfolio and invest in new plays even as it battles writedowns on major office towers and seeks to meet investor redemptions.

Charter Hall chief executive David Harrison said the business could thrive due to its early shift into logistics and sale-and-leaseback deals, as well as moving further into convenience retail and social infrastructure properties.

“We’ll look to take advantage of opportunities with our partners as they emerge,” Mr Harrison said. “We think they’ll be an acceleration of those opportunities.”

Mr Harrison noted that the group had been able to secure large portfolios in previous years but was being conservative on guidance. “We clearly have a more conservative view on transaction volumes going forward,” he said. “We’re in pretty challenging conditions so we’re just going to be conservative.”

But the company is sticking to its guns even as some rivals sell older assets in relatively soft markets.

“We will continue to operate the same strategy executed for 18 years since our IPO in 2005 – a capital light, partnership model where the fully integrated platform can identify and exploit opportunities and trends before they become mainstream,” Mr Harrison said.

The company’s operating earnings post-tax dipped by 18.7 per cent from $542.8m to $441.2m but this was ahead of market expectations. It reflected operating earnings per security post-tax of 93.3c per security and the company paid distributions of 42.5c per security.

Charter Hall securities jumped by 34c to $10.74 in Monday afternoon trade as investors backed its strategy and it played down analyst concern about its unlisted funds.

Mr Harrison noted it the company’s funds had a committed and uncommitted $13.9bn development pipeline, giving it further organic growth potential, ruled out pursuing a stock buyback.

The group’s operating highlights included allotting $2.8bn worth of gross equity and striking $10.4bn of property deals. These moves mean it now manages $87.4bn worth of funds, including $71.9bn of property.

Charter Hall said it delivered $3.1bn of new developments and completed four new office towers and 17 warehouses. It maintained it is on track despite downward valuations driven by rising interest rates and its property empire grew by $6.2bn.

Charter Hall said it would stick to its strategy of seeking to be a partner of major and superannuation funds looking for an exposure to real estate and believes it is well positioned despite the travails of office markets, where it is winning tenants for top new and existing towers.

Charter Hall said that based on no material change in current market conditions, fiscal 2024 earnings guidance was for post-tax operating earnings per security of approximately 75c per security. It grew distributions per security by 6 per cent.

The earnings came in ahead of market consensus but the guidance was released below expectations.

“While Charter Hall is typically conservative on initial guide, we believe the change in language around guidance to use “approximately” versus “no less than” could indicate lesser upside than usual reporting periods,” Citi analyst Suraj Nebhani said.

“Investors have been concerned about Charter Hall’s gearing and equity flows, and we believe lower flows and the increase in gearing will provide the bears another data point to hang on to. However, we see the robust transactions activity and Charter Hall’s commentary on balance sheet and investment capacity as positive,” he said.

Jefferies analyst Sholto Maconochie said the distribution guidance was ahead of consensus with this financial year having lower performance fees and earnings impacted by higher debt costs. “However, we believe the next six to 12 months may be harder due to elevated bond rates, increased debt costs and lower transactional activity, with increased redemptions and lower net equity inflows,” he said.

Charter Hall had $1.5bn worth of net equity inflows, down on the more than $4bn it was getting over the previous three years. But overall fee rates remained held up, despite rising competition in the market.

Balance sheet gearing has remained low at 2.2 per cent but the company’s look through gearing bumped up to 33.6 per cent.