Charter Hall targets funds management

THE diversified property group Charter Hall will focus on strengthening its funds management business through the wholesale market to offset any weakness in development projects.

By InvestSMART · 29 Aug 2012

By InvestSMART ·
29 Aug 2012

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THE diversified property group Charter Hall will focus on strengthening its funds management business through the wholesale market to offset any weakness in development projects.

In the past year the group said about 61 per cent of earnings were generated from the management of its wholesale funds, through management fees and recurring income from office and retail rents.

Cash has also flowed into the unlisted funds as investors look for less volatile havens than the sharemarket and bonds. Charter Hall's joint managing director, David Harrison, said the past year was one of consolidation.

In the year ahead the group would re-weight its focus to Australian office, such as its building at 2 Park Street in Sydney's CBD, and food-anchored retail and logistic warehouses through the listed and unlisted funds.

For the year to June 30, the group reported a profit after tax of $16.7 million, down 68.1 per cent on the previous corresponding period due to asset sales in the United States from the previously-listed Charter Hall Office REIT.

Excluding one-off write downs, operating earnings were $63.6 million or 21.5? per security, a 4.4 per rise on the 2011 year.

The full year distribution was 18.2?, up 10.3 per cent.

Mr Harrison forecast operating earnings for the year to June 30, 2013 to be in the range of 22.5? to 23? per security, or growth of between 5 and 7 per cent.

The senior REIT analyst at Goldman Sachs, Simon Wheatley, said the result was generally positive, with management commenting that the cost of debt in managed funds (in which Charter Hall has investment stakes) has fallen from 7.4 per cent to 6.2 per cent, and reductions in corporate overheads would provide some benefit.

During the year the group undertook a write-down on its 15 per cent interest in the CHOF5 wholesale fund, primarily driven by the Little Bay Cove development of about $5.8 million.

To offset some of the development declines, Charter Hall has increased its funds under management to $9.4 billion.

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Frequently Asked Questions about this Article…

What is Charter Hall’s main strategy for offsetting weakness in development projects?

Charter Hall plans to strengthen its funds management business through the wholesale market to offset any weakness in its development pipeline. Management says this means focusing more on recurring fee income from managed funds rather than relying solely on development gains.

How much of Charter Hall’s earnings come from wholesale fund management?

According to the group, about 61% of earnings in the past year were generated from management of its wholesale funds, driven by management fees and recurring income from office and retail rents.

Which property sectors will Charter Hall focus on going forward?

Charter Hall intends to re-weight its portfolio toward Australian office assets (for example its building at 2 Park Street in Sydney CBD), food-anchored retail and logistics warehouses, across both listed and unlisted funds.

How did Charter Hall perform financially for the year to June 30?

For the year to June 30 the group reported a profit after tax of $16.7 million, a decline of 68.1% on the prior corresponding period. Management attributed the drop largely to asset sales in the United States from the previously-listed Charter Hall Office REIT.

What were Charter Hall’s operating earnings and distributions excluding one-off items?

Excluding one-off write-downs, operating earnings were $63.6 million (about 21.5 per security), representing a 4.4% rise on the prior year. The full-year distribution was reported as 18.2, up 10.3%.

What earnings growth does Charter Hall forecast for the year to June 30, 2013?

Charter Hall’s joint managing director, David Harrison, forecast operating earnings for the year to June 30, 2013 to be in the range of roughly 22.5 to 23 per security, implying growth of between about 5% and 7%.

What did analysts say about Charter Hall’s results and funding costs?

Goldman Sachs senior REIT analyst Simon Wheatley described the result as generally positive. He highlighted that the cost of debt in managed funds (in which Charter Hall has stakes) had fallen from 7.4% to 6.2%, and that reductions in corporate overheads should also provide benefit.

Were there any significant write-downs or changes to funds under management?

Yes. The group took a write-down on its 15% interest in the CHOF5 wholesale fund, primarily driven by the Little Bay Cove development, about $5.8 million. To offset development declines, Charter Hall increased its funds under management to $9.4 billion.