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Half Year Report 2018

RESILIENT
GROWTH

Resilient Growth

We are pleased to announce another positive result for the Group delivering 1H FY18 distribution per security growth of 8.4% to 15.6cps. Over the five-year period, we have achieved OEPS compound average growth of 12.6% demonstrating our capability to create value and deliver sustained growth for our capital partners and investors.

Artistic impression of Wesley Place, 130 Lonsdale, Melbourne, VIC

1H FY18
HIGHLIGHTS

OPERATING EARNINGS PER SECURITY GROWTH

20.4cps

4.3% OEPS growth pcp

STATUTORY PROFIT

$120.6m

$21.9b

10.4% FUM growth

Property Investment Portfolio

$1.6b

Total Platform Return1

19.5%

Available liquidity to drive FUM growth

$3.2b

  1. Total Platform Return is calculated as growth in net tangible assets (NTA) per security plus distribution per security divided by the weighted average NTA per security for the 12 months to 31 December 2017

OUR
STRATEGY

  • 1H FY18 RESULTS
  • 3 YEAR1
  • 5 YEAR1

ACCESS

Accessing equity from listed, wholesale and retail investors

$0.9b
$5.4b
$8.4b
gross equity raised

DEPLOY

Creating value through attractive investment opportunities

$2.0b

gross transactions

$11.5b

gross transactions

$18.0b

gross transactions

$1.5b
$7.9b
$12.4b

acquisitions

$0.5b
$3.6b
$5.6b

divestments

MANAGE

Funds management, asset management, leasing and development services

$2.1b
$9.2b
$11.9b

FUM growth

336

properties

66

additional properties

141

additional properties

$1.5b

gross income

INVEST

Investing alongside our capital partners

$1.6b

Property Investment Portfolio

$836m

increase in PI

$1.1b

increase in PI

6.8%

growth in PI Portfolio

105.1%

growth

190.7%

growth

11.9%

Total Property Investment Return2,3

23.2%

Total Property Investment Return2

13.6%

Total Property Investment Return2

  1. For the period ending 31 December 2017
  2. Total Property Investment (PI) Return is calculated as growth in the PI portfolio value plus distributions received divided by the weighted average PI portfolio value
  3. 12 months to 31 December 2017

DAVID
HARRISON

Managing Director and Group CEO

MD & GROUP
CEO LETTER

Charter Hall Group has posted another solid financial result, with operating earnings per security (pre-tax) rising 8.3% to 24.0 cents for the six months ended 31 December 2017, and up 4.3% to 20.4 cents on a post-tax basis for the period. The Group posted a statutory after tax profit of $121 million.

VIEW THE LETTER

MD & GROUP
CEO LETTER

We are pleased to announce another positive result for the Group, delivering 1H FY18 distribution per security growth of 8.4% to 15.6cps, with the distribution now having the benefit of franking credits attached, and NTA per security growth of 2.6% to $3.69.”

Dear securityholders

Charter Hall Group has posted another solid financial result, with operating earnings per security (pre-tax) rising 8.3% to 24.0 cents for the six months ended 31 December 2017, and up 4.3% to 20.4 cents on a post-tax basis for the period. The Group posted a statutory after tax profit of $121 million.

Over the five-year period to 31 December 2017, the Group has achieved operating earnings per share compound average growth of 12.6%, demonstrating our capability as a funds and investment manager to create value and deliver sustained growth for our capital partners and investors.

Shareholders will receive an interim distribution of 15.6 cents per security, representing 8.4% growth on the prior corresponding period, comprising a 9.4 cents per security distribution from Charter Hall Property Trust (CHPT) and a 6.2 cents per security fully franked dividend from Charter Hall Limited (CHL). Net tangible assets per security also rose, up 2.6% to $3.69.

We continue to leverage the size and scale of our $21.9 billion property portfolio along with strong cross-sector tenant relationships to originate projects from within our portfolio. Our $4.4 billion pipeline of development activity is forecast to deliver investors institutional quality investment opportunities, adding significant value through enhanced income yield and total returns for our managed funds.

Property investment performance

During the six months to 31 December 2017 the Property Investment portfolio increased by 6.8% to $1.6 billion and generated an 11.9%1 Total Property Investment Return.

The active management and diversification of the Group’s Property Investment portfolio ensured the total portfolio occupancy remained strong at 97.8% and the Weighted Average Lease Expiry (WALE) remained stable at 7.4 years. The Property Investment portfolio continues to be well-diversified across funds and asset classes.

The Group’s Property Investments have continued to outperform their respective benchmarks, delivering 13.6% per annum return over the five years to 31 December 2017. As a result, the Group’s Property Investments outperformed the MSCI/IPD Unlisted Wholesale Pooled Property Funds Index, which returned 10.9% over the same period.

Property funds management

Charter Hall’s Property Funds Management portfolio is well-diversified, having grown to 336 properties, leased to 2,617 tenants, a WALE of 7.7 years and delivering more than $1.5 billion dollars of gross rental income.

Group FUM increased by $2.1 billion or 10.4% for the six months to 31 December 2017, reflecting a 19.0% compound annual growth rate since June 2012. During the period, $0.6 billion of revaluations, $1 billion of net acquisitions and $0.4 billion of capex saw the Group’s FUM increase to $21.9 billion.

Growth in the Group’s managed funds was driven by $0.9 billion of gross equity inflows comprising $480 million raised in Wholesale Funds and Partnerships, $323 million raised in Direct Funds and $78 million in Listed Funds. This equity was deployed into $1.5 billion of strategic asset acquisitions with a further $3.2 billion additional funding capacity available across the platform.

Divestments of $0.5 billion enhanced the property portfolio to drive sustainable returns and lock in realised returns. Preservation of capital and driving resilient income remain core strategies.

With $3.2 billion of investment growth capacity, we are well positioned to continue growing via our development pipeline as well as taking advantage of strategic opportunities as they arise.

Value enhancing development activity pipeline

Charter Hall continues to leverage its in-house development team to originate $2.4 billion of committed development projects with a forward pipeline of identified projects of $2.1 billion.

The Group continues to use its cross-sector tenant relationships and the scale of its portfolio to create investment grade opportunities generating significant value through enhancing both income yield and total returns for its funds. Development activity is undertaken by funds/partnerships and the majority of committed projects being de-risked through pre-leases and fixed price building contracts.

During the period, the Group announced major lease pre-commitments to Vanguard Australia, Telstra Super and Cbus Super at the $600 million redevelopment of Wesley Place, representing 50% of forecast income for the asset. The Group also commenced the redevelopment of the GPO Exchange office tower in Adelaide, de-risked by a fixed price contract with Built and over 90% of the net lettable area leased long-term to a major Australian ASX-listed company and the South Australian Attorney General’s Department.

Maintaining a strong balance sheet

The Group maintains a strong balance sheet, which remains ungeared with $87 million of cash on hand as at 31 December 2017 and considerable financial flexibility with total headstock investment capacity of approximately $250 million.

Capital management remains a key focus with $3.6 billion of new and refinanced debt facilities during the period providing a weighted average debt maturity of 4.0 years delivering debt tenor, enhanced Fund liquidity and diversification of lending sources. The Group maintains substantial funding capacity across the funds platform, with $3.2 billion of available liquidity.

Strategy and outlook

Based on no material change in current market conditions the Group’s FY18 guidance for operating earnings per security post-tax is no less than 3% growth on FY17 OEPS of 35.9 cents per security, equivalent to 37.0 cents per security.

The distribution payout ratio is expected to normalise and fall within our longer-term range, being 85% to 95% of OEPS post-tax on a full-year basis and franking credits will continue to be distributed.

The Group continues to focus on its strategy to access, deploy, manage and invest alongside our listed, retail and wholesale investors. We believe equity flows towards commercial real estate will continue for fund managers with proven records of accomplishment, who are able to provide access to institutional quality investments in markets that are underpinned by favourable property fundamentals.


  1. Total Property Investment (PI) Return is calculated as growth in the PI portfolio value plus distributions received divided by the weighted average PI portfolio value for the 12 months to 31 December 2017.

DAVID
HARRISON
Managing Director and Group CEO

PORTFOLIO
PERFORMANCE

$3 billion sale and leaseback transactions over the five years to 31 December 2017.”

SEAN MCMAHON
Chief Investment Officer

VIEW CASE STUDY

Major Tenant Customer Relationships

65% repeat tenant customers across 1,450 leases

  • Tenant retention rate of 77.5% in 1H FY18
  • CHC continues to be a major player within the sale and leaseback market with over $3.0bn sale and leaseback transactions over the 5 years to 31 December 2017
    • – CHC continues to see success sourcing off-market opportunities through loyal existing tenant customers
    • – Management believe there is still opportunity to do more sale and leaseback transactions within new and existing sectors
  • Global market volatility likely to continue to assist the sale and leaseback story as corporates continue strategic efforts to ensure balance sheet stability and focus on their core business operations/efficiencies

Examples of CHC’s Sale and Leaseback Relationships


103

Properties
valued at $8.7b

83

Properties
valued at $4.5b

46

Properties
valued at $2.7b

20

Properties
valued at $0.9b

2

Properties
valued at $0.1b

73

Properties
valued at $4.8b

8

Properties
valued at $0.2b

FUM By Equity Source


Asset type diversification


SUSTAINABILITY
REPORT

Sustainability is embedded in everything we do at Charter Hall

Welcome to the 2017 Charter Hall Shared Value and Sustainability Report. Our Shared Value approach is delivering great outcomes in eco-innovation, place creation and wellbeing. During the period we were proud to be recognised as Australia’s largest Green Star footprint, with 178 of our office, retail and industrial and logistics assets achieving a Green Star performance rating.

OUR SECTORS

  • OFFICE
  • INDUSTRIAL
  • RETAIL
  • DIRECT

OFFICE

“As one of the largest managers of CBD office properties in Australia, our strategy to actively manage our portfolio is creating enhanced value for investors through the successful re-development of existing assets, strategic acquisition of core office properties and divestment of non-core properties.”

ADRIAN TAYLOR,
OFFICE CEO


$10.0b

FUM

6.3yrs

WALE

49

PROPERTIES

5.67%

CAP RATE

98.1%

OCCUPANCY

$622m

CHC INVESTMENT

INDUSTRIAL
& LOGISTICS

“As one of Australia’s leading managers and developers of industrial and logistics real estate our focus is on owning and managing a geographically diverse portfolio of properties with strong tenant covenants, whilst leveraging relationships with our tenant customers across all sectors of our business.”

SEAN McMAHON,
INDUSTRIAL CEO


$5.8b

FUM

9.7yrs

WALE

116

PROPERTIES

6.27%

CAP RATE

97.2%

OCCUPANCY

$409m

CHC INVESTMENT

RETAIL

“As the leading owner and manager of Australian supermarket anchored shopping centres and with a portfolio of hardware, automotive showroom and hospitality assets, we are providing a secure and growing income stream for our investors.”

GREG CHUBB,
RETAIL CEO


$6.0b

FUM

8.4yrs

WALE

171

PROPERTIES

5.95%

CAP RATE

97.8%

OCCUPANCY

$601m

CHC INVESTMENT

DIRECT

“Charter Hall Direct is Australia’s leading manager of unlisted property funds and syndicates for retail investors including high net worth, self managed super funds and mum and dad investors that are self directed or use financial advisers.”

STEVEN BENNETT,
HEAD OF DIRECT PROPERTY


$3.0b

FUM

9.6yrs

WALE

55

PROPERTIES

6.25%

CAP RATE

99.8%

OCCUPANCY

$87m

CHC INVESTMENT

  • BOARD
  • EXECUTIVE

BOARD OF
DIRECTORS

EXECUTIVE
LEADERSHIP