Managing Director & Group CEO Message

Dear Securityholder

Y23 presented a range of challenges to economies around the world. Supply chain and labour constraints drove soaring inflation, which resulted in record interest rate rises in Australia and globally. This rapid increase in the cost of debt has impacted many asset classes.

Charter Hall has also felt the effects of this economic turbulence. However, our focus on resilience, diversification and partnership has allowed us to deliver above guidance earnings, while we have continued to curate our portfolios and stay close to our investor and tenant customers as they navigate this turbulence.

Our property FUM grew by $6.2 billion or 9.5% to $71.9 billion over the year.

Our return on contributed equity continues to be sector leading at 23.8%, as we harness our investment expertise for the benefit of securityholders and invest alongside our investors.

Our Property Investment Portfolio grew $33 million and now stands at $3.0 billion.

We delivered earnings of 93.3 cps, ahead of our guidance of no less than 90 cps. This was a 19% decrease in earnings compared to FY22, which reflects the elevated transaction and performance fee revenue delivered in FY22.

Importantly, we have continued the upward trajectory of earnings growth ex-transaction and performance fees, which has been a key focus of the Group since our ASX listing in 2005. We will continue to drive this element of sustainable earnings growth despite headwinds to fund distributions from rising debt costs.

While inflation growth is decreasing, FY24 is expected to remain a challenging operating environment. With that in mind, we will continue to optimise cost control and sustain high-quality service for our customers. Prior dislocation events have created opportunities for the benefit of investors and securityholders. It is in times like these that customers turn to trusted companies with scale, a proven track record, an experienced team providing best-in-class service and a business model that is built to endure. We see these as the key ingredients to retain and grow our customer base.

As the largest custodian of capital invested in Australian property, our approach to partnership and mutual success remains central to the way we do business and will enable us to weather the cycle and emerge poised for growth.

Demonstrated strength of our underlying business

Throughout the year, we have continued to actively curate sustainable and resilient portfolios that unlock value for investors through all market conditions. This focus on performance for our investors, and our co-investment alongside them, continues to attract capital to our platform. FY23 was no exception, with $2.8 billion of gross equity allotted, which helped facilitate $10.4 billion of gross transactions.

Our Office development activity remained robust, delivering $2.2 billion in new developments this year, with a further $13.9 billion in the pipeline. Modernisation of our Office portfolios is targeted to meet the bifurcation of tenant demand we have seen play out for many years. This trend was accelerated by the pandemic, with tenant customers increasingly committing to modern and new buildings so they can retain and attract talent to the very best workplaces.

We continued to enjoy strong leasing success in our Office projects, having leased 388,000sqm across 222 leasing transactions. 360 Queen Street in Brisbane is now two-thirds pre-committed. 555 Collins Street in Melbourne has over 90% of available space committed to blue-chip companies including anchor tenant Amazon, Allianz, Aware Super and Ericsson. 60 King William Street in Adelaide has 95% pre-commitments to NAB, Telstra and Services Australia.

Notably, our Office portfolio is over 96% occupied versus a national average of 85.1%, demonstrating the critical role that modern workplaces will continue to play and our ability to deliver on our tenant customers’ evolving needs. 

Our Industrial & Logistics business also continued to grow, delivering $874 million of new facilities through its development pipeline and actively curating its portfolio by undertaking $3.4 billion of acquisitions and $1.5 billion of divestments. Excitingly, we have begun construction on our first multi-level warehouse, located in the inner-city Sydney suburb of Alexandria, which is already 80% pre-leased to Schindler and Coles. We remain well-positioned to capitalise on the accelerating demand for modern, purpose-built, highly efficient facilities and warehouses. Our Industrial & Logistics portfolio has grown to over $30 billion (including pipeline), making Charter Hall one of the largest logistics platforms nationally.

In Retail, our non-discretionary convenience retail portfolio continues to provide resilient income returns, with our triple net, CPI-linked convenience retail platform now exceeding $9 billion. This is complemented by a large Bunnings portfolio and supermarket-anchored shopping centre portfolio, seeing our Retail FUM total $14 billion.

Similarly, the essential service thematic embedded in our Social Infrastructure portfolio and the importance of these assets to the community and the economy means such assets have delivered resilience and liquidity where funds have looked to divest assets. We continued to see opportunities to grow in this space and further our position as a market leading social infrastructure partner.

Our property funds management portfolio is well-diversified, comprising 1,663 properties with a lettable area of 11.9 million sqm and delivering over $3.3bn in net rental income per annum.

We have built resilience across all our assets and portfolios. Evidence of this is that 26% of all leases are triple net, meaning the tenant pays all outgoings including structural repairs and maintenance. Similarly, we have made a conscious effort to build portfolios that are positioned to benefit from rising inflation, with 21% of all leases having inflation-linked annual rent escalations, providing direct inflation hedging.

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 cash retention to fund a FY23 payout ratio of circa 50%.

Our growth in earnings comes after-tax. On a post-tax basis, we delivered sector-leading 15.1% OEPS compound annual growth rate (CAGR) annually over the last ten years. Tax paid earnings also deliver valuable franking credits for our securityholders. Grossed-up for franking credits, securityholders received distributions worth 50.76 cps for FY23. The quantum of franking credits delivered by Charter Hall to securityholders makes us unique in the Australian real estate investment trust sector.

Quality property funds management portfolio

Our property funds management portfolio is well-diversified. Group WALE remains strong at 8.2 years and the weighted average capitalisation rate is 4.76%, reflecting the low risk profile and high-quality assets in our funds and partnerships.

Active development pipeline

Our development capex continued to make a meaningful contribution to our FUM and portfolio curation. We had $3.1 billion of development completions during the year across our Office (four assets) and Industrial & Logistics (17 facilities) portfolios. This is an enormous achievement.

The Group is progressing various developments across our portfolios, creating modern investment-grade properties and adding significant value through enhancing income yield and total returns.

Our development completions for FY23 have added significant incremental stabilised income to our portfolios.

Our total development pipeline now stands at $13.9 billion, with $6.6 billion committed and under construction, providing for future portfolio curation and FUM growth.

Demand for industrial space continues to significantly outweigh supply, as demonstrated by the high levels of pre-leasing to quality tenants within our $6.5 billion Industrial & Logistics development pipeline.

Our pipeline will generate institutional-quality, long-leased assets for our funds and will provide attractive incremental FUM growth and enhance our ability to attract capital.

Our $7.1 billion Office pipeline continues to deliver attractive development returns and new buildings to meet tenant demand for best-in-class, modern and sustainable workplaces. This includes completions at 555 Collins Street in Melbourne, 60 King William Street in Adelaide, 155 Little Lonsdale at Wesley Place in Melbourne and 31 Duncan Street in Brisbane.

Work continues to progress on schedule at 480 Swan Street, Richmond, which will be the 32,000sqm Australia Post headquarters in Melbourne. This year we progressed our plans for Chifley South, which is already 30% pre-committed, having submitted our development application following endorsement from the City of Sydney.

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. 72% of our tenant customers lease more than one tenancy across the platform.

We see our customers as partners, and this often generates sale and leaseback opportunities. We continue to have independent surveys of tenant customers and are pleased to see our Net Promoter Score (NPS) scores leading almost all our peers across all sectors. 

Defensive and diversified Property Investment portfolio

With $3.0 billion co-invested in our funds, 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.

Occupancy has improved from 97.3% to 97.6%, and the Property Investment portfolio WALE remains a healthy 7.4 years. Our weighted average rent review is attractive at 3.6%, boosted by our exposure to CPI-linked leases. The Group’s Property Investment portfolio is a very defensive, well diversified, core investment portfolio.

Our people are our greatest asset

Key to our success are 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. It is the breadth of experience and talent within our sector-diverse business that enables us to deliver for our customers.

Our culture has long been one of our key strengths. I’m proud and inspired by the way our people continue to respond dynamically to the challenges we face. This culture is reflected in our employee engagement. For FY23, our engagement score was 89% – nine points above the Australian norm – with 93% of our people saying that Charter Hall is a great place to work.

Diversity and inclusion continues to be a priority, across the business as we actively seek to attract and retain talented people from a wide range of experiences, backgrounds and perspectives, celebrate diversity and provide a sense of belonging for all our people.

Outlook and guidance

Based on no material adverse change in current market conditions, FY24 guidance is for post-tax OEPS of approximately 75 cents. FY24 distribution per security guidance is for 6% growth over FY23.

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 Group Board for their continued strategic guidance along with the Independent Directors of our Fund Boards.

Our approach to partnership underpins the strength of our long-term outlook, as we continue to deepen our existing relationships and establish new ones, unlocking value and enabling a better future for our customers, our communities, and our people.

We are proud of what has been achieved over more than three decades and continue to look beyond the horizon, with ambitious goals for the future. Finally, thank you to all our investors and tenants for continuing to be part of our Charter Hall Group community.

David Harrison
Managing Director & Group CEO