Charter Hall independently values its Direct property assets typically every 6-12 months.¹ These valuations are carried out by a panel of tier-one Australian valuation firms. The individual valuers appointed to these firms (and to value the assets) hold the required qualifications, training and accreditation to undertake commercial real estate valuations ensuring assets are assessed accurately. To further ensure independence and rigour, Charter Hall regularly rotates valuers across assets. The results of these valuations are then reviewed and approved by directors of the Responsible Entity (which includes non-executive directors) to ensure consistency and accuracy of the reports. During periods of elevated market volatility or if it is believed that an individual property's value may have materially changed (i.e. the gain or loss of a key tenant ) then at any time a new valuation will be undertaken.

Valuing Australian commercial real estate relies on several established methods, with the most common approaches being the analysis of comparable property transactions, capitalisation of income and discounted cash flow modelling. Of these, valuers rely most on recent comparable sales, as they offer tangible, up-to-date benchmarks grounded in actual market transactions. By referencing real evidence from completed deals, valuations are anchored in verifiable market data rather than short-term sentiment. 

While standard valuation methodologies underpin the process, valuers also take into account a range of specific asset-level factors that can materially influence an individual property’s value. These include:

Occupancy and WALE: High occupancy rates and longer Weighted Average Lease Expiry (WALE) periods generally contribute to higher valuations, as they indicate lower leasing risk and more stable returns.

Income profile: A property’s income profile is a key determinant of its value. Older buildings sometimes demonstrate higher income yields as they are valued at a lower capital value relative to that income, often reflecting aspects like building age, leasing profile, and risk characteristics compared to modern properties.

Cash flow and tenant strength: The reliability of income, largely determined by the quality of the tenant, is crucial. Tenants such as government entities and large corporates are typically considered most desirable from a valuation perspective.

Building condition and capital expenditure: The age and condition of a property affect its value. Buildings requiring substantial repairs or upgrades may see lower occupancy and reduced returns. 

Conversely, newer assets or those with recent fit outs often require less ongoing capital expenditure, enhancing their desirability and value, especially when improvements align with market and tenant needs.

Location: Properties located in established commercial precincts with robust tenant demand, good transport links, and limited competing supply command higher valuations. In contrast, assets in secondary or less accessible areas are typically valued at higher yields, reflecting their greater leasing and market risk.

Importance of independent valuations

Independent valuations provide transparency and help ensure unit prices reflect current market conditions. They also support fair pricing for investors entering or exiting a fund.

Relationship between interest rates and capitalisation rates

Capitalisation rates are a key property valuation metric. They represent a property’s market net income expressed as a percentage of its total value. Similar to interest rates and bonds, there is an inverse relationship between capitalisation rates and property values, as capitalisation rates increase, property values decrease, and vice versa (all else being equal). Importantly, changes in interest rates do not affect property valuations immediately. The impact typically takes time to flow through to market transactions, often with a lag, before being fully reflected in valuations.

How valuations and gearing impact a fund

Movements in property valuations are reflected in the unit price, meaning any changes, whether upward or downward, have a direct effect on the value of an investor’s holding. Gearing, which refers to the use of debt in addition to equity, amplifies the effects of changes in property valuations. When asset values increase, gearing enhances returns by enabling investors to hold a larger portfolio than would be possible with equity alone. Conversely, if asset values decline, the impact on investors’ equity is magnified as the obligation to repay borrowed funds remains, thereby increasing the sensitivity of returns to market movements. Charter Hall adopts a prudent approach to managing gearing, aiming to strike an appropriate balance between enhancing returns and controlling risk.

Timing of valuations

Valuations are generally conducted on a quarterly basis, with each asset independently valued at least once every 12 months. In practice, funds holding multiple assets usually arrange for different sections of their portfolios to be independently valued throughout the year. 

The results of these valuations are reflected in unit prices and are communicated in Quarterly Reports.