Charter Hall takes funds under management to $80b
Rising interest rates could play in the favour of Charter Hall as corporations look to divest their real estate holdings, creating acquisition opportunities for the ASX-listed property fund manager.
Led by David Harrison, Charter Hall’s deal-making prowess has proven itself robust amid economic turbulence, taking its funds under management 52.8 per cent higher over the 2022 financial year to almost $80 billion.
That escalation has in turn turbocharged Charter Hall’s operating earnings which jumped 90 per cent higher to $542.8 million. The 2022 financial year result exceeded expectations while guidance for the current year, deemed conservative by analysts, was also ahead of consensus. Its stock closed 6.5 per cent, or 82¢ higher, at $13.36.
The key to the Charter Hall machine is its ability to secure more commercial real estate – its portfolio ranges across office towers, logistics facilities, social infrastructure and retail – through transactions and its own development pipeline, which has risen to almost $16 billion. That growth primes not only its own investment returns, but its funds management income, which jumped 170.1 per cent to $204.4 million in fiscal 2022.
Further boosting Charter Hall’s managed funds was its acquisition of a 50 per cent stake in investment house Paradice Investment Management last December.
“My view is that I don’t like anything not growing in Charter Hall,” Mr Harrison told analysts on Thursday.
Hence, Mr Harrison’s interest in sale-and-leaseback style deals, which have proven a ready source of deals for Charter Hall’s platform. In an environment of rising rates, corporates who would once have spurned divestment in favour of increasing debt may need to reconsider, according to Mr Harrison.
“Those days are over because the cost of corporate borrowing money has risen. And therefore the relative merits of doing sale and leasebacks are going to be stronger in this environment than they ever have been,” he said.
The climate of disruption should also boost demand and investment interest in Charter Hall’s office exposure, which at 32.5 per cent comprises the largest proportion of its managed portfolio, according to Mr Harrison.
That’s because as corporate tenants seek to reinvent their workplaces in the wake of the pandemic to win over staff wedded to flexible working, they will need the latest in amenity.
“The war for talent means that people really have to create amenity, both within their workplace and in the surrounds. That’s why we’re so focused on these modern buildings and precinct plays,” he said.
“There’s going to be a big bifurcation, particularly in office and industrial markets where the tenant customers want modern space. There’ll be a big delta between relatively low vacancy rates in modern office buildings in all markets and the older buildings at 30, or 40, and some of them are 50 years old, they’re really going to struggle to retain tenants.”
Adding weight to that point, Charter Hall this week won approval to develop a $1.7 billion second tower at Chifley Square in Sydney, while earlier this month it took control of the freehold on a prime site in Melbourne’s Collins Street, where there is significant scope for development as well.
Charter Hall’s distributions rose 6 per cent to total 40.1¢ over fiscal 2022, and it has forecast a similar level of growth over the current year.
“Guidance for financial year 2023 ahead of expectations and given Charter Hall’s long-term track record of upgrading through the year, we expect it to be received well,” UBS analysts wrote.
