Charter Hall Group

John Gandel became one of Australia’s richest men after building a shopping centre empire chiefly in Victoria before selling out to Colonial First State near the top of the property boom. Had you invested in Charter Hall Group alongside him in May 2009, as we discussed in Charter Hall summons Gandel the great on 20 Sep 10 (Hold – $2.90) [adjusted for 5 for 1 security consolidation], you’d almost have tripled your money. The company’s share price has virtually doubled in the past year alone.

While managers of unlisted property funds have struggled to raise money in the aftermath of the GFC due to poor returns and highly geared structures, Charter Hall’s funds under management have increased to $9.4bn from below $4.0bn in 2009 chiefly due to acquisitions. The ongoing management and performance fees have helped the company increase the annual distribution from 12.6 cents per security in 2010 to 18.2 cents in 2012. Management is to be commended for acquiring assets at bargain prices during the GFC, which included former listed Macquarie property groups such as Macquarie CountryWide, and attracting Gandel’s money and experience at board level.

If you assume the company’s net tangible assets per security of $2.12 is reliable, then the funds management business is currently valued at almost 20 times earnings before interest and tax (EBIT). This lofty multiple could fall quickly if the funds and fees keep growing and property prices increase, but there’s no margin of safety if this virtuous cycle kicks into reverse. We’d likely upgrade Charter Hall at a much lower price, but for now it’s a HOLD.