Property fund manager’s shares jump 15pc after results
Property fund manager Charter Hall – which manages $81 billion of assets – has stared down the naysayers in the commercial real estate sector, delivering 2024 earnings moderately above guidance and flagging a healthy 6 per cent rise in distributions in the coming year.
That solid result, coupled with firm guidance, was met with enthusiasm. Investors sent Charter Hall stock jumping 15.8 per cent, or $1.91, to close at $14.01 after chief executive David Harrison laid out its 2024 financials.
Their endorsement came despite Charter Hall’s pool of assets – from which it collects management fees, the largest source of its revenue – shrinking over the last 12 months by $6.5 billion to $80.9 billion. Of that, there is a $65.5 billion pool of commercial property funds – office towers, malls, warehouses, and social infrastructure such as childcare centres – along with $15.4 billion held through Paradice Investment Management.
But Mr Harrison said big investors, whose funds Charter Hall manages, were preparing to invest again as the rate cycle peaked. The listed market may have been “overly negative” about Charter Hall’s prospects, he said, amid a broader trend to write down the value of commercial properties, particularly office towers, as interest rates and bond yields have risen.
“There’s a bit of a realisation that we’ve probably been unfairly marked down if you look at the scale of our business,” he told The Australian Financial Review.
“People have started to realise that the negativity toward office is overdone. I’ve been pretty clear for a few years around the bifurcation [in the office sector], both in tenant demand and investor demand, for better quality modern assets.”
Capitalisation rates, or cap rates, an industry metric akin to investment yields, have risen significantly over the past two years as the risk-free rate on long bonds has risen. Cap rates typically move in the opposite direction to commercial property values.
Strong rental growth
But Charter Hall has urged its shareholders to take a longer view, illustrating that in its results presentation by showing how strong rental growth has largely offset the impact of rising cap rates over the past four years. Over that period, industrial assets have increased 32 per cent on a like-for-like basis, office buildings are down only 2.8 per cent, and Charter Hall’s platform is up 11.9 per cent.
“There’s been a lot of publicity on some of the old boilers, the 40-year-old buildings that have traded over the last 12 months and some of those high yields, as if that the new norm,” Mr Harrison said.
Charter Hall posted a nearly 19 per cent drop in its operating earnings of $358.7 million for its 2024 financial year, a result that was nonetheless slightly ahead of guidance – and promised a 6 per cent lift in distributions over the coming year.
That earnings result represents post-tax operating earnings per security of 75.8¢, and the distributions totalled 45.1¢. Mr Harrison signalled a rise in earnings to 79¢ this year, a forecast that is 5 per cent ahead of market expectations. The guidance is for a 6 per cent growth in distributions.
Charter Hall’s statutory net profit fell to a $222.1 loss, down from $196.1 million in the previous year, mostly as a result of bringing portfolio devaluations to book.
There is upside potential for Charter Hall’s 2025 earnings guidance as well, because it has not factored in any performance fees that may be gained from its fund management efforts.
“Overall, most metrics looked better than feared, in our view highlighting that Charter Hall is managing this downturn well,” Jarden analyst Lou Pirenc wrote in a client note.
“We would argue much of this environment is reflected in the share price. Charter Hall has underperformed the fund management peer group in the last 12 to 18 months, and a recovery in property sentiment and transaction markets should eventually lead to a significant OEPS recovery and re-rating.”
