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Charter Hall Market Update and Folkestone Acquisition Completion

07/11/2018

Charter Hall Group (ASX: CHC) (the Group) today announces a strong start to FY19 with updated FUM, equity flow, transactions and leasing activity, along with the successful completion of the Folkestone Limited acquisition. Key highlights for the period include:

Operational highlights

  • Completed $205 million acquisition of Folkestone Limited, which comprises $1.6 billion of FUM
  • Combined with a further $1.4 billion of net acquisitions, FUM has grown to $26.4 billion
  • Increased portfolio of 779 properties across the office, industrial, retail and social infrastructure sectors comprising a weighted average lease expiry (WALE) of 7.7 years, occupancy of 97.9% and weighted average capitalisation rate (WACR) of 5.76%1
  • 156 leasing deals executed across 172,000sqm of space in the office, industrial and retail sectors
  • Total development pipeline of 37 office, industrial and retail projects with an on-completion value of $3.7 billion, de-risked through pre-leases and fixed price building contracts

Equity Flow

  • Continued momentum in equity flows with $918 million gross equity raised across the Group YTD
  • $641 million in equity raised across wholesale pooled funds and partnerships. Strong equity flowsdriven by recent raisings in CPOF and CPIF
  • Direct Funds have continued to maintain their market leading status with a further $217 millionraised across four open ended funds
  • CLW successfully complete a $60 million institutional placement in October
  • Property Investment Portfolio increased by 5.5% to $1.8 billion

Funds Under Management

  • 13.8% growth in funds under management (FUM) to $26.4 billion across the office, industrial, retailand social infrastructure sectors

Charter Hall’s Managing Director and Group CEO, David Harrison said: “We are pleased to report both deployment and replenishment of investment capacity via new equity inflows, whilst retaining theresilience of our property portfolio evidenced by maintaining a 7.7 year WALE and 5.76% cap rate, high occupancy and high quality tenant customer base. Significant leasing activity across ourcross-sector platform continues to de risk portfolios and enhance returns from value add development activity for the benefit of fund investors and securityholders.”

Property Investment Performance

During the period, the Group’s Property Investment portfolio increased by $93 million or 5.5% to $1.8 billion. Occupancy remains strong at 97.4% and the WALE stable at 7.2 years. The Group’s Property Investments portfolio has expanded to include a $108 million investment into social infrastructure via the Folkestone Education Trust (ASX:FET) co investment, to be re-named the Charter Hall Education Trust. Following completion of the Folkestone Limited acquisition, Charter Hall has secured a 15.3% stake in FET.

Continued Property Funds Management Growth

As at 7 November, Group FUM has increased by 13.8%. During the period, the $1.6 billion Folkestone acquisition along with $1.4 billion of net acquisitions and $0.2 billion of capex saw the Group’s managed funds grow to $26.4 billion. There were minimal revaluations during the quarter, with market evidence pointing to further tightening of cap rates, particularly in the office sector.

Charter Hall continues to leverage its highly qualified and experienced in-house development team, providing its full suite of integrated property services to originate 37 office, industrial and retail projects with an on completion value of $3.7 billion, de-risked through pre-leases and fixed price building contracts. The Group has also successfully completed the acquisition of another high-quality development asset at 555 Collins St, Melbourne for the Charter Hall Prime Office Fund (CPOF) and announced another Education development in partnership with Western Sydney University.

Folkestone Acquisition completed

The Group also announces today the successful completion of the scheme implementation agreement for Charter Hall to acquire Folkestone Limited for a total consideration of $205 million, funded by cash from available investment capacity.

Charter Hall’s Managing Director and Group CEO, David Harrison said: “We are very pleased to have successfully completed this transaction and we look forward to the Folkestone team joining Charter Hall and the complementary skills they will bring as we work together to grow the funds management platform. I would like to thank Greg and his executive team, the Folkestone Board and investors for their support.”

The transaction grows Charter Hall’s funds under management (FUM) by $1.6 billion. The acquisition also sees the Group grow its investable universe into the social infrastructure and early learning sector.

Strategy and Outlook

Based on no material change of current market conditions and the completion of the Folkestone transaction, FY19 guidance is for 8-10% growth in post-tax operating earnings per security over FY18.

The distribution payout ratio is expected to be between 85% and 95% of operating earnings per security post-tax.

1 WALE, Occupancy and WACR as at 30 September

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