Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
Charter Hall’s ‘custodian’ approach pays off
You could be forgiven for thinking that 2020 was a difficult year for property investors, with the pandemic impacting all asset classes in unforeseen ways, no more so than property. As we have seen in other asset classes, there is still little certainty in what lies ahead beyond lockdowns, social distancing and the reopening trade.
Different parts of the economy have clearly been challenged, but despite the backdrop of shuttered retail and empty office blocks, ASX-listed property fund manager Charter Hall (ASX:CHC) has managed to navigate the pandemic exceedingly well.
The group recently delivered its financial-year 2021 results with two standout announcements. The first was the exceptional growth in capital raisings and inflows, with $5.3 billion in new money coming into the fund’s strategies and the second, $10 billion in gross transactions for the year. Combined with the $4.3 billion in revaluations and the company clearly knows how to navigate a crisis.
The strong results contributed to a better-than-expected operating profit figure, with management delivering $284.3 million in operating earnings, equating to 61 cents per share. While slightly around 15 per cent below 2020’s 69.3 cents per share, it was a remarkable result given the uncertainty and disruption caused by an endless stream of lockdowns and WFH directives.
According to its results presentation the group now has more than $52 billion in assets under management with an increasingly diversified asset base. Long known for its commitment to logistics and warehousing, industrial property remains CHC’s largest exposure, at $15.5 billion, with many tenants unaffected by the pandemic due to their important role in the economy.
Their office and retail assets, covering $22.8 and billion and $6.7 billion respectively, were more challenged, however the preference for longer weighted average lease expiry (or WALE) properties appears to have minimised any major impact on rent collections. According to management, rent collections were also supported by its diversified tenant base with the Federal Government making up 14 per cent of all income, just ahead of Woolworths, Wesfarmers and Coles, who may well be the four least-impacted employers in Australia.
The result was strong performances across the suite of funds:
- Charter Hall Direct Long WALE Fund (LWF): 17.1% pa (10.4% pa since inception)
- Charter Hall Direct Office Fund (DOF): 16.3% pa (15.3% pa since inception)
- Charter Hall Direct Industrial Fund No.4 (DIF4): 15.7% pa (11.4% pa since inception)
- Charter Hall Direct PFA Fund (PFA): 12.1% pa (10.3% pa since inception)
Having just reached its 30-year anniversary and 16th of being an ASX-listed entity, managing director David Harrison highlights that it has been the more diverse nature of the business that has been key to its performance in FY21. He says, “if you have a successful and profitable funds management business, you are generating free cash flow over and above your rents”. The alternative of course, is if you are simply owning property assets and your only source of revenue is rent, than you would likely be seriously challenged in the current environment.
Harrison stresses the group’s approach to its relationship with investors and tenants, noting that its “partnership approach generated $5.3 billion of gross equity inflows, with all equity sources recording strong inflows.” Sale-and-lease-back transactions represented some 40 per cent of capital deployed in FY21, as company boards had a renewed focus on releasing capital from balance sheets, offering strong and consistent rental yields in return.
With interest rates set to remain lower for longer, investors remain attracted to commercial property assets for their consistent income, even more so as equity markets appear overvalued by traditional measures. It is this theme that saw management offer guidance for a further 6% increase in distributions in FY22 assuming conditions don’t deteriorate significantly.
Commenting on the final point, to the Australian Financial Review, Harrison says “I don’t think you can lock-down economies indefinitely……So we will move towards a reopening when vaccinations are available for those who choose to be vaccinated.”
