- Operating Earnings Per Security (OEPS): $0.758 per security, slightly ahead of guidance.
- Return on Contributed Equity: 24.9% pretax, 19.4% post-tax.
- Distributions Growth: 6% annual growth.
- Funds Under Management (FUM): Decreased from $87.4 billion to $80.9 billion.
- Property Fund Value: Decreased from $71.9 billion to $65.5 billion.
- Transaction Activity: $4.1 billion of gross transactions.
- Asset Divestments: $2.4 billion.
- Asset Acquisitions: $1.7 billion.
- Net Operating Expenses: Down 5.2% year-on-year.
- Balance Sheet Gearing: 3%.
- Cash Reserves: Just under $400 million.
- Investment Capacity: Nearly $700 million ready to deploy.
- Development Completions: $1.3 billion for the year.
- Industrial Development Prelease Rate: 90%.
- Office Development Precommitment Level: Approximately 69%.
- PI EBITDA Growth: 9.1% to $271 million.
- Development EBITDA: $36.4 million.
- Funds Management Income Reduction: 27.7%.
- Finance Costs: $19.8 million on balance sheet debt, $86.2 million on co-investments.
- Operating Earnings Post Tax: $358.7 million.
- Distribution Per Security: $0.451 per security.
- Statutory Earnings: Minus $222.1 million.
- Base Funds Management Revenue Reduction: 3.8%.
- Platform Occupancy Level: 97.9%.
- Employee Costs Reduction: 9.2%.
- Total Assets Reduction: In line with underlying valuation declines.
- Investment Capacity: $683 million.
- Loan Facilities: $30 billion.
- Undrawn Loans and Cash: $6.6 billion.
- Platform Average Leverage: 34.9%.
- Weighted Average Debt Maturity: 3.7 years.
- Weighted Average Cost of Debt: 4.4%.
- Hedge Level: 62% for the next 2 years.
- FY '25 Earnings Guidance: Post-tax operating earnings per security of approximately $0.79.
- FY '25 Distribution Guidance: 6% growth over FY '24.
Release Date: August 20, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Charter Hall Group (CTOUF, Financial) delivered operating earnings per security slightly ahead of guidance at $0.758 per security.
- The group's return on contributed equity remains one of the highest in the sector at 24.9% pretax and 19.4% post-tax.
- Annual growth in distributions continues at 6%, providing attractive franking credits to investors.
- Net operating expenses are down 5.2% year-on-year, demonstrating effective cost control.
- The balance sheet remains strong with 3% balance sheet gearing and nearly $700 million of investment capacity ready to deploy.
Negative Points
- Operating earnings per security (OEPS) for FY '24 is below FY '23, despite being slightly ahead of guidance.
- Group FUM has fallen from $87.4 billion to $80.9 billion, and property fund FUM has decreased from $71.9 billion to $65.5 billion.
- Financial year '24 experienced reduced transaction activity with $4.1 billion of gross transactions, reflecting subdued equity flows.
- Statutory earnings for FY '24 are negative at minus $222.1 million due to underlying portfolio valuation declines.
- Funds Management segment income reduced by 27.7% due to lower transaction volumes and continued expansion of cap rates.
Q & A Highlights
Q: Can you give us some insights into how we should think about the moving parts from '24 to '25, given your guidance of $0.79?
A: We have not forecast any performance fees in our FY '25 guidance. The full-year impact of cost restructuring done during '24 will be realized in '25. We also expect stabilization of asset values across sectors, particularly high-quality office assets. Overall, we are confident about the growth trajectory without any performance fees, making it one of the highest quality composition guidances provided in the last 20 years. - David Harrison, CEO
Q: Are there any material new fund launches that could be happening in FY '25?
A: We will announce new fund launches and successful capital raises as they occur. You will see it reflected in our equity flows going forward. - David Harrison, CEO
Q: Can you discuss the difference between your DPS growth guidance of 6% and EPS growth guidance of 4%?
A: We have a long-term target of 6% DPS growth and do not focus on the payout ratio. There will be years where EPS growth might be slightly under DPS growth and vice versa. This strategy allows us to retain cash and earnings for future investment without needing to raise equity. - David Harrison, CEO
Q: Do you expect to be a net acquirer of assets in FY '25?
A: We hope to be. We categorize transactions into portfolio curation and net acquisition growth. We have significant capacity with over $6 billion of undrawn debt and cash. Our net acquisition growth will depend on our net equity inflows. - David Harrison, CEO
Q: Can you provide some color on redemptions for FY '25 and whether those can be filled with new equity or asset sales?
A: We will conduct asset sales to fund redemptions in an orderly fashion, protecting the interests of both redeeming and remaining investors. We have been successful in facilitating secondaries, particularly across our industrial and office funds. Investors will consider the IRR they are walking away from and the friction costs before deciding to exit. - David Harrison, CEO
Q: Can you discuss the payout ratios across the funds platform?
A: There has been no change in the payout ratios across the listed funds reported for FY '24. Wholesale funds have maintained their levels, with some adjustments made in early 2023. - Anastasia Clarke, CFO
Q: What level of gearing are you comfortable deploying into going forward?
A: We have maintained balance sheet gearing between 0% and 10% over the last 10 years. We do not have a specific balance sheet gearing target but aim to retain flexibility. We see better deployment opportunities now than two years ago, and prospective returns look better than in June '20. - David Harrison, CEO
Q: Can you provide a steer on the Development Investment (DI) earnings segment and how it might vary versus this year?
A: DI earnings generally come from curating sites, getting approvals, pre-leasing, and selling them. We also see trading opportunities in buying assets below replacement cost, de-risking them, and extending lease terms. We expect DI earnings to continue growing from the FY '24 results. - David Harrison, CEO
Q: Can you discuss the lag impact of WALEs on the funds management margin for FY '25?
A: The FUM reduction in FY '24 was over 7%, but base fees only came down 3.8%. We will get the full-year effect of this in FY '25, and we aim for a jaws effect from cost reductions and stabilization in valuations. - Anastasia Clarke, CFO
Q: Do you expect to be a larger co-investor in the period ahead given your conviction that the cycle has reached a trough?
A: We do not plan to increase our percentage stake in funds but will deploy balance sheet capital to capture attractive assets for our capital partners. We aim to increase the dollars invested on balance sheet in new vintage opportunities. - David Harrison, CEO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
