Challenger tops expectations
The key assets for divestment include the industrial/business parks at Taylors House, Waterloo, and 187 Todd Road, Port Melbourne.
Challenger's French-based properties are still on the market and the company is looking for appropriate offers. A repositioning of the Jam Factory retail centre in Chapel Street, South Yarra, was boosted by the Topshop Topman store and saw an increase in rent, and there are expectations of improved performance from the centre in the coming year.
Leasing at the Forum in St Leonards was also on track, in an office market the group described as "patchy". The Domain Car Park in Sydney reported flat earnings.
Challenger's fund manager, Trevor Hardie, said that for the half year to December 31 the group reported a profit from operating activities of $22.9 million, with earnings increasing marginally to 10.70¢ a unit.
That was ahead of market expectations with analysts saying it was a "harbinger of good news for the reporting season".
Mr Hardie attributed the gains to rental increases, which on a like for like basis rose 5 per cent. After adjusting for fair value movements, primarily interest rate swaps, statutory net profit increased 10 per cent to $20.8 million. At the group's investor briefing, Mr Hardie reaffirmed the group's full year guidance of 21¢ distribution paid out of a forecast profit of $17.4 million.
"We continue to make progress on our strategic execution and portfolio enhancements and to grow earnings," Mr Hardie said. "Challenger is focused to achieve the position as the preferred mid-cap Australian diversified real estate investment trust."
The head of real estate research at Goldman Sachs, Simon Wheatley, said while the first half surpassed market guidance there was no meaningful advancement on the lease of problem vacancies, or the divestment of non-core French assets. He said these items continued to have the biggest leverage impacts to earnings.
"Net tangible assets increased by 0.4 per cent to $2.74 per unit with a slight increase in valuations despite average cap rates increasing. Average occupancy was marginally up, assisted by the sale of a largely vacant property," Mr Wheatley said.
"The Domain Car Park was down on the previous corresponding period and only break even; overall portfolio net operating income was below our estimate. The lower interest expense was the saviour resulting in the EPS [earnings per share] beat."
Frequently Asked Questions about this Article…
For the half year to December 31 Challenger reported a profit from operating activities of $22.9 million and earnings of 10.70¢ a unit, ahead of market expectations. After adjusting for fair value movements (mainly interest rate swaps) statutory net profit rose 10% to $20.8 million.
Challenger reaffirmed its full‑year guidance of a 21¢ distribution, to be paid out of a forecast profit of $17.4 million.
Management attributed gains primarily to rental increases — like‑for‑like rents rose about 5% — plus portfolio actions such as property sales and lower interest expense, which helped the earnings per unit beat analysts' expectations.
Key assets earmarked for divestment include industrial/business parks at Taylors House, Waterloo and 187 Todd Road in Port Melbourne. Challenger’s French‑based properties remain on the market for appropriate offers, and the Jam Factory retail centre in South Yarra is being repositioned.
The Jam Factory’s repositioning was helped by the Topshop Topman store and delivered higher rent. Management expects improved performance from the centre in the coming year.
Simon Wheatley, head of real estate research at Goldman Sachs, said the first half beat market guidance but noted there was no meaningful progress on leasing troublesome vacancies or divesting non‑core French assets — items that have the biggest leverage impact on earnings. He also noted net tangible assets rose 0.4% to $2.74 a unit.
Average occupancy was marginally up, helped by the sale of a largely vacant property, and valuations edged slightly higher despite average cap rates increasing. The Domain Car Park in Sydney reported flat earnings and was effectively break‑even versus the prior corresponding period.
Investors should watch progress on leasing of problem vacancies, the timing and pricing of divestments of non‑core French assets, and conditions in the patchy office market — all highlighted in the briefing as key items that could materially affect future earnings.
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