Corporate Overview
With over 32 years’ experience in property investment and funds management, Charter Hall is one of Australia’s leading fully integrated property groups. We use our property expertise to access, deploy, manage, and invest equity across our core sectors – Office, Retail, Industrial & Logistics, Social Infrastructure and Living Sector with an initial focus on Build to Rent (BTR).
Operating with prudence, we’ve carefully curated a A$88.0 billion plus diverse portfolio, comprising A$73.0 billion property FUM over 1,680 high-quality, long leased properties to more than 4,000 tenants.
Partnership and financial discipline are at the heart of our approach, with our balance sheet capital primarily invested alongside our investors in both funds and partnerships. Currently we have more than A$3.0 billion co-invested in our funds and partnerships, underpinning our focus on mutual success.
We take a long-term view, and combine insight and inventiveness to unlock hidden value for our customer and communities. Our A$15.4 billion pipeline of develop to core projects delivers sustainable, technologically-enabled, future-proofed assets that attract key customers and high-quality, long-term leases, ultimately delivering superior returns for our funds and partnerships.
The impacts of what we do are far-reaching. From helping businesses succeed by supporting their evolving workplace needs, to providing investors with superior returns for a better retirement, we’re powered by the drive to go further.
Charter Hall is listed on the Australian Securities Exchange and trades under the ticker ASX: CHC.
Note: Figures and statistics throughout this presentation are as at 31 March 2023unless otherwise stated.
Strategic corporate development
Charter Hall Group actively seeks out opportunities to strategically grow its business across Australia, with an emphasis on diversification, through new funds, capital partners, tenant customers, asset acquisitions and our develop to core pipeline across Office, Convenience and Long WALE Retail, Industrial & Logistics, Social Infrastructure and now Living sectors, with BTR being the primary focus.
Through diversification of capital sources, Charter Hall has built resilience into its business model, supported by a high-quality team focused on delivering outstanding results for our tenant customers and investors. Our strategic focus continues to be on investment funds and partnerships that are characterised by long weighted average lease expiries (WALE), high occupancy, and annual rent reviews, that deliver real income growth to our investors.
Charter Hall’s development pipeline enables us to add value to existing assets while developing new high-quality, ESG-enhanced assets (develop to core) within our funds and partnerships.
Investment Principles & Strategy
Charter Hall is a fully integrated property investment management platform with expertise across investment management, property and asset management, transaction, leasing and development.
We are a leading owner and manager of long WALE assets that are predominantly leased to corporate and government tenants on long term leases. Our focus on quality, well-located assets, with strong ESG credentials and secure long-term leases, together with our ability to unlock hidden value, creates a balance between stability, returns and growth.
Our portfolios are carefully curated with a risk-adjusted focus to optimise returns, while delivering resilience and durable cash flows through enhancing tenant quality, extending the WALE, and actively managing each of our assets.
Charter Hall’s development pipeline enables us to add value to existing assets while creating new product within our funds (develop to core) to limit the need for buying assets in a competitive on-market environment.
With a property portfolio of more than 1,680 properties valued at A$73.0 billion and leased to over 4,000 tenants, Charter Hall’s market penetration creates opportunities to provide cross-sector solutions to tenant customers. It also gives us a competitive advantage to secure long-term leases from these customers who appreciate the scale and diversity of our market reach. More than 70% of our tenant customers lease more than one tenancy from us.
Our leading market share in transactions along with our dedicated teams in each major metropolitan market, provides invaluable insight into local property markets. In the past five years, we have undertaken A$41.2 billion of gross transactions (A$33.5 billion in acquisitions and A$7.8 billion in divestments) driven by our investment management, transaction, property services and support teams working collaboratively to curate our portfolios for the benefit of our funds and partnerships.
A key competitive advantage is our unparalleled access to off-market deals, having completed approximately 70% of all transactions off-market over our long history. We also leverage our skills and relationships to partner with major corporate and government entities on sale and leaseback transactions. We have undertaken more than A$10 billion in sale and leaseback transactions in the past five years, securing our position as the leader in the Long WALE triple net lease sector.
Charter Hall has also extended its fund management capability with a 50% investment in the listed equities Fund Manager Paradice Investment Management (PIM), which invests on behalf of wholesale and retail investors across domestic and global listed equities.
Note: Figures and statistics throughout this presentation are as at 31 March 2023 unless otherwise stated.
Sector forecasts
Office
The bifurcation in demand by quality is the leading market trend in the office sector, with organisations seeking high-quality office space to incentivise the return to office, while promoting collaboration and productivity. Over the past two years, the occupied space across the Prime CBD markets increased by above 680,000sqm, while Secondary sector net absorption decreased by more than 150,000sqm.
There has been an increased tenant focus on sustainability, health and technology. There has also been an increase in demand for quality precincts with good amenity and proximity to transportation. These trends were exhibited throughleasing activity. Over 2022, groups that moved occupied 15.4% more space in the next accommodation and paid at 9.3% premium. Certain groups that chose to contract space, however, move into higher quality accommodation.
Having close to 2,500 tenants across the platform gives us a unique lens into the way firms are thinking about both their future business and space needs.
Sydney CBD achieved new growth benchmarks this quarter with 2.3% prime net effective growth representing the highest since December 2017. On an annual basis, the Sydney CBD reported 5.9%, just marginally behind Adelaide CBD’s 6.7%.
Industrial & Logistics
The sector continues to benefit from growing requirements in a post COVID-19 environment. The demand for modern logistics assets is intensifying, driven by the ongoing evolution of online retailing, the importance of supply chain resilience, higher transportation costs, sustainability requirements and onshoring. These factors are adding to the shortage of industrial space. Vacancy rates are at historically low levels and the demand for space continues to outweigh the supply of new stock.
A shortage of development stock, supporting infrastructure and higher construction costs have also been restrictive on supply of new developments.
Annual rental growth across the Prime Industrial sectors increased at the fastest pace since 1989 (24% at March 2022). Vacancy rates across the National Prime industrial market are at a historically low level of 0.6%. The vacant stock is anticipated to remain low given the robust growth in demand and ongoing challenges across the supply environment.
Additionally, sale and leaseback has been a feature of the industrial & logistics market, and in the current environment, we believe industrial occupiers will continue to consider sale-and-leaseback strategies to enhance their capital management or to reinvest in their business.
Retail
The retail environment is anticipated to become increasingly diverged, with challenging conditions across discretionary retailing expected. In the wake of historical economic slowdowns, Supermarket and other convenience-focused retailing have demonstrated a resilience. Convenience and long WALE retail cashflows continue to be in high demand given their durability and inflation hedging characteristics.
Larger retail malls that are more exposed to discretionary-focused retailing will likely face a more challenging environment over the near-term. Their performance reflects both cyclical elements and the acceleration of the structural changes arising from the growth in online shopping and the fall-out from COVID-19. This weakness in larger discretionary retail centres has been priced in with significant declines in valuations and investor demand. We expect this weakness to continue in the year ahead.
Build to Rent
Australia is currently in the midst of a worsening housing crisis, fuelled by affordability issues, record low vacancy levels, prolonged forecast period of new housing undersupply, strong forecast population growth as well as changing household composition as a result of the COVID-19 pandemic. BTR is a nascent but growing sector in Australia that offers a very neat and sizeable solution to introduce new housing supply and an improved residential rental model. BTR is well established in global markets like the US, UK, Japan and Europe, whereby residents are attracted to the flexibility, sense of community and caring responsiveness of an institutional landlord. Meanwhile, the benefit to global investors is the resilient income streams derived from rental income. Charter Hall is uniquely placed, with over 1,680 assets across Australia, to create a significant and best-in-class BTR portfolio and has entered the sector at a key time where government is recognizing the important role that BTR can play in easing some of the current housing stress, signified by the recent changes announced in the 2023-24 Federal Budget. This includes:
- an increase to the rate for the capital works tax deduction (depreciation) to four per cent per year (from 2.5 per cent),
- a reduction of the final withholding tax rate on eligible fund payments from managed investment trust (MIT) investments from 30 per cent to 15 per cent. The reduced MIT withholding tax rate is forecast at a cost of $30m over the forward estimates.
Social Infrastructure
Social Infrastructure assets, such as childcare centres, senior housing (manufactured housing and aged care), student accommodation, government premises and medical/health facilities, are becoming an increasingly attractive sector for investors. Essential by nature, these sectors continue to benefit from strong demand fundamentals and can perform well in a higher inflationary environment. The underlying demand drivers and attractive yields are set to attract further capital into these assets in the year ahead.
Compliance statement
This information has been prepared by Charter Hall Funds Management Limited (ACN 082 991 786) (together, with its related bodies corporate, the Charter Hall Group). This information has been prepared without reference to your particular investment objectives, financial situation or needs and does not purport to contain all the information that a prospective investor may require in evaluating a possible investment. Prospective investors should conduct their own independent review, investigations and analysis of the information contained in or referred to in this publication and the further due diligence information provided. It is not an offer of securities or advice. Any forecast or other forward-looking statement contained in this information may involve significant elements of subjective judgement and assumptions as to future events which may or may not be correct. There are usually differences between forecast and actual results because events and actual circumstances frequently do not occur as forecast and these differences may be material. Charter Hall Group is not responsible for providing updated information to any prospective investors.
