Charter Hall predicts earnings increase

Acquisitive Charter Hall Group has lifted its earnings guidance to a sector-leading range of 8-10% for this financial year as its expands its $16 billion property funds empire across Australia.

Charter Hall has been one of the most active groups over this heated phase of the property cycle, but is pitching itself as a long-term player able to create its own assets across a number of sectors as competing for real estate in the open market becomes more difficult.

The group, backed by billionaire John Gandel, cited volatility across global equity markets as driving institutional and retail investors towards high-quality properties.

Shake-up: Two becomes one as Harrison assumes Charter Hall leadership

Last month it shook up its management structure, with David Harrison taking the helm after sharing responsibilities for a decade with David Southon. Harrison, now managing director and chief executive, emphasises the long leases on many of the group’s assets and its diversification into lower-risk retail, industrial and hospitality funds.

“We will continue to focus on portfolio security by investing in assets with strong tenant covenants and long lease durations delivering sustainable income and capital growth for securityholders,” Harrison says.

Looking ahead, he says: “We’re cautiously optimistic for the next couple of years”.

Charter Hall is often touted as a potential suitor in merger situations, but Harrison emphasises the group’s growing internal capacities, and potential to launch new funds.

Charter Hall boss David Harrison. Picture: The Australian.

The group struck $1.7 billion worth of property deals in the last half and, while not in focus on Thursday, it has a $250 million-plus office sale in train in Adelaide, is close to offloading a $500 million industrial portfolio and hopes to spark a $500 million tower in North Sydney.

Charter Hall recorded first-half operating earnings of $61.2 million and lifted its overall funds empire to $15.9 billion, from $13.6 billion at the end of June. The company’s fee income surged 20% and the group lifted its earnings margin to 41.8%.

JPMorgan analysts estimated the rise in assets under management reflected net acquisitions of $1.1 billion and revaluation gains of $1.2 billion.

The company had earlier guided towards a 7-9% earnings rise this year and analysts partly attributed the lift to higher transaction revenues.

We will continue to focus on portfolio security by investing in assets with strong tenant covenants and long lease durations

Harrison notes that the company has $150 million in cash to deploy across its funds but will do so judiciously in order to build them for the longer term.

Underlying gearing edged up from 23% to 29.2%. However, in keeping with its conservative stance, the group plans to extend the maturity of its debt from an average of 3.3 years.

Earnings from property funds management jumped 24% to $26.4 million, with the rise driven by purchasing in industrial sector and valuation uplifts.

UBS analysts say the high levels of activity during the half saw performance fees come in over $5 million higher than expected.

“We expect this to continue to drive earnings growth, offsetting lower transactional activity,” UBS says. Charter Hall securities were flat at $4.46.

This article originally appeared on www.theaustralian.com.au/property.