Charter Hall Retail REIT FY12 Results

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by Charter Hall Announcements

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Charter Hall Group (ASX:CHC) (the ‘Group’ or ‘Charter Hall’) today announced its full year results for the 12 months to 30 June 2012 following an active year focused on reweighting towards an Australian platform. 


Results summary:

  • Statutory profit after tax of $16.7 million, down 68.1% on the prior corresponding period (“pcp”) 
  • Operating earnings before specific items of $63.6 million or 21.5 cents per security (cps), up 4.4% on the prior pcp
  • Net operating earnings after specific items of $54.8 million or 18.6 cps, down 9.7% on pcp
  • Full year distribution of 18.2 cps, up 10.3% on pcp
  • Net Tangible Assets (NTA) per security of $2.13, down from $2.21 as at 30 June 2011


Operational summary:

  • Increase in property co-investment yield to 7.1%, up from 6.4% last financial year
  • Sale of $1.7 billion of offshore assets during the year to reweight to Australian platform
  • Secured over $1 billion in equity during the year across its unlisted wholesale and retail platforms, with an additional $319 million secured since 30 June 2012
  • Realised $68 million of the investment portfolio for redeployment
  • Resized the business for domestic scalable platform
  • Full provision for clawback of previously received performance fees from CHOF 4 of $14.2m or 4.8cps
  • Impairment of investment in CHOF 5 of $5.8 million or 2.0cps


Charter Hall’s Joint Managing Director, David Harrison, said: 


“Financial year 2012 has been a very active year for the Group which has seen us consolidate our domestic platform via securing over $1 billion in equity, including equity required to replace the Charter Hall Office REIT listed equity for the Australian portfolio, with a further $319 million added since 30 June 2012. Earnings improvements from managed funds together with margin expansion from the funds management business have contributed to solid growth. This momentum has continued with the acquisition of the $164 million Bay Village Shopping Centre with a wholesale global institutional partner. In addition, unlisted retail investor fund inflows have included Direct Industrial Fund and 144 Stirling Street Trust and most recently by acquisition of the $422 million PFA Diversified Property Trust".


Charter Hall’s results are reported in three key earnings streams, being property investment, property funds management and development investment.


The following table sets out the earnings breakdown for each of the key earnings streams reported by EBITDA before specific items:


Key earnings streamFY12 EBITDAFY11 EBITDA
Property Investment$39.9m$37.4m
Property Funds Management$23.3m$20.7m
Development Investment$2m$3.8m
Total before specific items$65.2m$$61.9m



Importantly, 97% of the Group’s EBITDA before specific items was generated from core sector property investments and property funds management, and 89% of the Group’s EBITDA before specific items was generated from annuity style income.



Property investment – EBITDA of $39.9 million, representing 61% of the Group’s EBITDA

Property investment comprises the Group’s $530 million co-investment in its managed funds. The Group improved the annualised income yield from property investments to 7.1%, up from 6.4% in the last financial year, following improved income from property assets and a reduction in average interest costs within its funds.

The Group’s property investment portfolio is well diversified across the core property sectors of office, retail and industrial. The portfolio’s top ten tenants includes high quality Australian companies such as Wesfarmers, Woolworths, Citigroup, BHP Billiton and Australian Government agencies and represent 42.7% of the total portfolio’s gross income.


Property funds management – EBITDA of $23.3 million, representing 36% of the Group’s EBITDA

Today the Group’s total funds under management is $9.4 billion, which compares to $10.7 billion at 30 June 2011, reflecting the $1.7 billion disposal of Charter Hall Office REIT’s (now Charter Hall Office Trust) United States portfolio and a number of offshore sales within Charter Hall Retail REIT’s portfolio.

The Group’s total domestic funds management platform is $8.9 billion which has grown 4% per annum growth since June 2011 when the Group managed $8.5 billion of assets, and 11% per annum since June 2010 when the Group managed $7.2 billion of domestic assets.

Charter Hall has seen renewed institutional and retail investor interest in Australian property, with the Group securing over $1.3 billion of capital across its unlisted wholesale and retail platforms since 30 June 2011.

Charter Hall now manages 184 Australian office, industrial and retail properties across its fund portfolios, comprising 2.3 million square metres of net lettable area and generates a gross rental income of $817 million from almost 3,000 tenants.

The Group’s asset and property management team were active during the year completing leasing transactions with new and existing tenants over more than 245,000 square metres. This active management approach has driven a higher total occupancy and like-for-like income growth across the portfolio.

During the year, the Group and its managed funds have transacted on $2.6 billion of property assets, having divested $2.1 billion of assets including Charter Hall Office REIT’s United States office portfolio and acquiring around $500 million of quality core assets. The Group continues to manage an active development book and pipeline of $1.3 billion of which around $800 million is within its core funds across 14 projects.


Development investment – EBITDA of $2 million, representing 3% of the Group’s EBITDA

During the year, Charter Hall has written down the carrying value of its 15% equity accounted investment in the Charter Hall Opportunity Fund No 5 (CHOF5) by a net $5.8 million, primarily related to the impairment of development inventory at Little Bay Cove, Sydney. CHOF5 has recently contracted to sell the completed office development at 40 Creek Street, Brisbane; has settled on more than 81% of residential apartments within the now completed Lacrosse, Melbourne; and has completed and settled 41% of the townhouses in the Aquilo project, Melbourne.

Given continued challenging conditions within the opportunistic sector, Charter Hall will focus on realising the remaining $42.8 million of equity invested in its opportunistic funds, Charter Hall Opportunity Fund No 4 (CHOF4) and in CHOF5, over the next two years. National industrial pre-lease developer, Commercial & Industrial Property Pty Limited, in which Charter Hall has a 50% interest, continues to provide the Group with a strategic off-market source of industrial investment for its funds, contributing $1.5 million of earnings after tax to Group earnings.


Active capital management approach

Charter Hall focused on recycling its property and development investment capital into higher return investments during the year. Charter Hall realised almost $70 million of capital from its co-investments and reinvested $41 million into new investments including increasing its stake in Charter Hall Retail REIT and taking a 20% equity interest in a new retail partnership fund acquiring the Bay Village Shopping Centre alongside an international institutional investor. The Group aims to recycle a further $112 million of equity over the next two years.

The Group also focused on actively managing its debt profile refinancing $3.0 billion across its managed funds which resulted in an improved weighted average maturity of 3.1 years and a lower average cost of debt of 6.2%, down substantially from 7.4% last financial year.

Charter Hall continues to have low balance sheet gearing of only 1.4% which together with targeted capital recycling provides the Group with a strong liquidity position to manage its working capital and investment requirements.

Over the last 12 months Charter Hall has undertaken a reorganisation of the business to resize the operations to support growth in its domestic core business and focus on creating a scalable operating platform.


Strategy and outlook

Charter Hall’s strategy is to access, deploy and manage equity that is invested into core real estate sectors to create value and provide sustainable income and capital returns for clients and securityholders.


The Group’s focus over FY13 is to:

  • Source equity to invest into core real estate sectors targeting growth in the Australian funds management platform by 6 10% per annum
  • Drive further growth in the property investment portfolio yield and capital value
  • Realise and recycle a further $112 million capital from property and development investments over the next two years
  • Diversify sources of debt funding for the managed fund platform
  • Continue to capitalise on a scalable operating platform to service funds under management growth


Joint Managing Director, Dvaid Southon, said:


“Charter Hall continues to use its competitive advantages to access equity and investment opportunities for clients at an attractive point in the property cycle, exploiting large positive income to debt yield spreads to drive total returns in excess of investors’ expectations".