Financial year 2021 (FY21) continued to challenge global economies and businesses, with the COVID-19 pandemic persisting as we closed out the year. Despite these challenges, Charter Hall generated record fund growth and equity inflows across the business.
We continued to drive market leading transaction volumes and outperform respective benchmarks across most of our funds and partnerships. At the same time, we maintained a razor-sharp focus on our customers, as evidenced by continued leasing and pre leasing of developments, results from our customer surveys and a leading volume of sale and leaseback transactions with corporate customers.
Overall, FUM grew by $11.7 billion or 29% for the year, deploying capital for our investors and generating FUM and earnings growth for securityholders.
This year, we celebrated an important milestone – 30 years since the founding of Charter Hall and our 16th financial year as a publicly listed Group. It was an incredible opportunity to connect with our people (past and present), tenant customers, partners and investors to reflect on the relationships that we’ve built, the impact that we've had, and to show our gratitude to everyone who has played a role in our success. Our growth over 30 years has been built on a foundation of partnership and mutual success. That continues to drive us today.
Since our ASX listing in 2005, we have grown from $1 billion in FUM to more than $52 billion. In FY21 alone, we generated record gross equity flows of $5.3 billion, achieved $11.7 billion of FUM growth and delivered total shareholder return for the Group of 64.1%.
It’s important to reflect on where we came from, but I am most encouraged by where we are going. Our focus remains on delivering sustainable growth for securityholders and replenishing capital within funds and partnerships as we continue to deploy capital through develop-to-core strategies and selective acquisitions. With a curated portfolio of 1,388 high quality assets, we will continue to make enhancements through asset diversification and Long WALE and we continue to pick strategies and sectors that will outperform the return benchmarks expected by our investors.
Resilience in the face of economic setback
Our approach to resilience ensured that our business continued to grow despite significant setbacks for many parts of the Australian economy. I want to acknowledge that this simply could not have happened without our people, who took the evolving situation in their stride, ultimately delivering incredible results for our customers, partners and investors.
The Industrial & Logistics sector performed particularly well during the year. We first took the lead in this sector with the inception of our flagship wholesale industrial fund in 2007. Subsequent multiple strategies across all equity segments mean we have been well positioned to capitalise on the accelerating demand for modern, purpose-built, highly efficient facilities and warehouses. We’ve seen this through strong leasing demand for our 60-hectare MidWest Logistics Hub, attracting key tenant customers such as Coles, Uniqlo, Toll, Bridgestone and Inghams. At our recently completed Tradecoast Industrial Park in Brisbane, we attracted major customers such as Amazon, Australia Post and DHL.
In our Office sector, our new developments and leasing activity remained strong because we were able to adapt and meet the evolving needs of our tenants. Our strong performance in Office, despite continued uncertainty in the sector, means we remain confident in the long-term outlook and firmly believe that modern workplaces will continue to play a critical role for the majority of businesses and the economy.
Our non-discretionary convenience Retail portfolio again demonstrated resilience, as we partnered with our tenants to ensure our retail centres remained open throughout the year. Similarly, within our Social Infrastructure portfolio, the essential nature of childcare was proven, with centres remaining open during the COVID-19 pandemic and associated restrictions and supported by government funding that further demonstrates its importance to the economy.
Long term performance
Financially, we continue to be disciplined and self funded from a growth perspective via a consistent 6% per annum distribution growth policy that has facilitated retained cash earnings to reinvest in the growth of the business.
Importantly, our growth in earnings comes after-tax. On a post-tax basis, we have delivered sector-leading 14.5% operating earnings per security (OEPS) growth rate (CAGR) annually over the last five years. Tax paid earnings also deliver valuable franking credits for our securityholders, which, when combined, provided total pre-tax OEPS of 74.2cps.
Over the 16 years since listing, Charter Hall generated a total shareholder return of 18.2% compounded annually versus the A-REIT Index S&P/ASX 200 (GICS) Property Accumulation Index return of 4.8% over the same period. We also outperformed the ASX100 and 200 Indices over this period.
Quality property funds management portfolio
Our property funds management portfolio is well-diversified comprising 1,388 properties, with a lettable area of 9 million square metres and delivering almost $2.5 billion in net rental income per year. Group FUM WALE has increased to 9.1 years and the weighted average capitalisation rate firmed to 4.8%, together with continued portfolio curation that has enhanced the low risk profile and high quality of our funds and partnerships.
Significant growth in FUM
Group FUM grew by a record $11.7 billion to $52.3 billion in 12 months, driven by net acquisitions, net valuation growth and development expenditure.
We have been active in acquiring and divesting assets. In FY21 we recorded $2.1 billion of divestments, more than double that of previous years. $8 billion of acquisitions also exceeded activity in prior years, resulting in net acquisition growth of $5.9 billion.
All our sectors have been active, led by our Industrial & Logistics and Office sectors. They accounted for one-third of our overall transaction activity, respectively. Long WALE Retail made up a further 24%, with Social Infrastructure at 10% and Shopping Centre Retail at 1%.
Our portfolio curation and delivery of strategy contributed to $4.1 billion of net valuation growth during the year, which equates to a 10% increase in the Group’s net FUM during FY21. Our Industrial & Logistics and Long WALE triple net lease portfolios have been stand-out net valuation growth performers. Of course, this growth also reflects the trust placed in us, as custodians of capital, to wisely manage and invest on behalf of our investors.
Active development pipeline
$1.8 billion of development capex during FY21 continued to make a meaningful contribution to both FUM growth and portfolio curation.
The Group is progressing various developments across its portfolios, creating modern investment grade properties and adding significant value through enhancing income yield and total returns. Our development completions for FY21 add significant incremental stabilised income to our portfolios. Our total development pipeline now stands at $8.8 billion, approximately half committed and under construction, providing for future portfolio curation and FUM growth.
Our $3 billion Industrial & Logistics development pipeline is predominantly pre-leased to high quality tenants and will generate institutional quality long-leased assets for our funds. It will provide attractive incremental FUM growth and enhance our ability to attract capital. The average lease term of pre-committed developments across Industrial & Logistics and Office is approximately 10 years by income and value.
Our Office pipeline also continues to deliver attractive development returns and new office buildings, despite uncertainty in the market due to COVID-19. This year, we commenced construction on our new office development at 555 Collins Street in Melbourne and announced a major pre-lease agreement with Amazon. The 60 King William Street, Adelaide project is 70% preleased to a commonwealth government tenant customer, whilst the Industrial & Logistics platform has secured major preleases to Coles, Australia Post, Ingham’s, Amazon and extended leases to major customers Woolworths, Metcash, Coles and Chemist Warehouse.
We also recently announced that Australia Post would become an anchor tenant at our new 32,000 square metre development 480 Swan Street, Richmond Vic, underpinning the strength of our cross-sector relationship and the value of our precinct approach in new office development projects.
Valued relationships with our tenant customers
Strong relationships with our tenant customers continue to be an essential strategic focus. We are always looking for new ways to support our customers and actively partner with them to provide inventive solutions to meet their needs.
Our success with our tenants is reflected in the high level of repeat business – in fact, 76% of our tenant customers lease more than one tenancy from us. We see these businesses as more than just tenants. We view our relationship as a partnership which allows us to better meet their property needs, driving increased tenant retention.
81% of tenants who had a lease expiring with us in the past 12 months are now re-leasing with us. Importantly, this benefits securityholders by producing earnings resilience across our property investment portfolio and feeds back into transactions, with our significant sale and leaseback activity providing off-market opportunities across sectors to grow our funds.
Resilient Property Investment portfolio
Our Property Investment portfolio provides a strong alignment of interest with our investor customers, while also ensuring that securityholders benefit from our property expertise. These earnings are characterised by the high quality of our tenants, the diversity of sectors, and the lack of concentration risk.
The portfolio has grown to $2.4 billion, or 19% over the year, reflecting our strategy to invest alongside our capital partners and the growth achieved in underlying asset values. The portfolio has delivered an attractive 6.1% Property Investment yield, with further capacity for new investments from retained earnings and recycling of capital from co-investment stakes into new growth opportunities.
Occupancy is broadly stable, and through active asset management, the property investment portfolio WALE has increased to 9.1 years. Our weighted average rent review remains attractive at 3.1%. The number of properties has also increased significantly to 1,322, as we continue to expand and diversify our investments. We believe the Group’s Property Investment portfolio is a very defensive, well diversified, core investment portfolio
Culture is our bedrock
Our greatest asset is the people who work here, along with the executives and non-executive directors that represent investors on our various Boards of listed and unlisted funds. We never underestimate the breadth of experience and talent our sector-diverse business provides to our customers.
Our culture has long been one of our key strengths. Many of our people faced challenges this year as the pandemic persisted and intermittent lockdowns were enforced. We continued to focus on ways to support them, improve wellbeing and remain connected.
Pleasingly, this was reflected in the continued strength of our employee engagement for FY21, with 95% of our people reporting that they would recommend Charter Hall as a good place to work. We do not take these scores for granted and are incredibly proud of the engagement we have seen across the business. We continue to prioritise maintaining a happy, healthy and engaged workforce.
When we look at our people, we see the next generation of leaders in property. Our role is to provide our people with the experience, training and tools they require to succeed. This includes personalised learning to develop skills and capabilities aligned to their development goals and career aspirations, as well as providing diverse opportunities to move laterally within the business.
We were very proud this year to be named on the 2021 AFR BOSS Best Places to Work List, and ranked second overall on the Property, Construction and Transport list, from nearly 700 nominated organisations across Australia and New Zealand. This recognition is a testament to our diverse and inclusive culture, which enables our people to be their best self, and do their best work.
We continue to emphasise diversity and inclusion across the business and actively seek to attract and retain talented people from a wide range of experiences, backgrounds and perspectives to cultivate our inventive spirit.
As a Board and management team, we recognise that the importance of diversity and inclusion goes beyond hiring diverse candidates. It must involve celebrating diversity - ensuring a sense of belonging and creating value for all our people.
This year, Charter Hall was also named an Employee of Choice for Gender Equality citation holder by the Workplace Gender Equality Agency, recognising us as an industry leader for our efforts in career development, gender-balance recruitment, flexible work practices, degendered parental leave schemes and pay equity.
As members of Pride in Diversity and the property industry initiative Interbuild, we continue to grow our network of allies and LGBT+ employees nationally, at the same time as we have moved up the ranks in the Australian Workplace Equality Index.
We are proud of our achievements, and we will continue to prioritise making all our people feel supported and valued and ensure that they see a future for themselves at Charter Hall.
Accelerating our environmental goals
We know that ESG investment continues to be a key thematic for investors assessing their portfolios. Our continued and increasing focus on ESG positions the business for success and will be a source of competitive differentiation.
Sustainability is central to how we conduct our business and always has been. Our goal is to be a role model in the Australian property sector by creating environmental and social value alongside sustainable growth and returns. This year, we have made demonstrable progress on our climate initiatives.
Across the Group, we have reduced our carbon emission intensity (Scope 1 and 2) by 7% since FY17, despite a 37% increase in area over that time. As of 30 June 2021, we had 240 Green Star certified buildings across the portfolio, maintaining Australia’s largest Green Star footprint.
We continued to invest in renewables and have doubled onsite solar in the last year generating 58.9GWh of electricity. We have also secured 100% renewable electricity from offsite sources for assets within our operational control across our Industrial & Logistics and Office portfolios. This switch for Office will reduce Group Scope 2 emission by more than 65%, encompassing 1.5 million square metres of workplace assets and representing more than $19 billion in gross asset value.
Our transition away from fossil fuel energy sources is well underway. We are investing to future-proof our workplace developments through energy efficiency measures, including a shift toward all electric buildings powered by renewables, in line with our market transition strategies.
We believe these steps and the scale of our portfolio, position the Group well to continue making meaningful progress against our Net Zero Carbon in operations target for Scope 1 and Scope 2 emissions and address climate related risks and opportunities.
Outlook and guidance
Based on no material adverse change in current market conditions, FY22 earnings guidance is for post-tax OEPS of no less than 75cps. FY22 distribution per security guidance is for 6% growth over FY21.
My thanks, on behalf of the Executive Committee, to all our people for their hard work this year. I would also like to thank the Charter Hall Group Board for their continued strategic guidance along with the Independent Directors of our Fund Responsible Entity Boards.
Our strategy of using our property expertise to create value and generate superior returns for our customers underpins our ability to continue to deliver returns for securityholders.
Finally, thank you to all our investors and tenants for continuing to be part of our Charter Hall Group community.
Managing Director & Group CEO