Charter Hall sees ‘old boiler’ office blocks lose tenants in wake of COVID-19

Fund manager Charter Hall expects ageing office towers to become vacant in coming years as tenants seek out new sites that conform with upgraded health and hygiene demands brought on by the global pandemic.

Speaking at the group’s half-year results on Wednesday, chief executive David Harrison said the flight to quality new towers would underpin developments in capital cities and in the suburbs, with government departments, technology companies and blue-chip corporates seen as likely dominant tenants.

“You don’t have to be Einstein to work out that there will be a bifurcation in the office market between the haves and the have-nots,” Mr Harrison told analysts. “The new towers will attract the tenants and the old boilers, as I call them, the 30 to 40 year-old office blocks will struggle to retain or attract new tenants.”

Charter Hall paid $500 million for the David Jones’ Elizabeth Street store in Sydney.
Charter Hall paid $500 million for the David Jones’ Elizabeth Street store in Sydney.

The ASX-listed $6.4 billion fund owns a range of premium-grade office towers and manages a swath of listed and unlisted property trusts. One of its most recent deals was the $500 million purchase and leaseback of the David Jones flagship department store in Elizabeth Street, Sydney.

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Charter Hall issued an earnings per security upgrade from 53¢ to 55¢ for the full year, boosted by a 14.4 per cent rise in funds under management to $46.4 billion. In the pandemic-hit six months from June to December 2020, it saw its funds under management grow by $5.8 billion as investors sought out the safe haven of bricks and mortar assets.

Statutory profit after tax was $173.2 million, down 44.7 per cent on the previous corresponding period, but was impacted by the timing of performance fees payments.

The company declared an interim distribution of 18.6¢ per security, up from 17.5¢ a year ago and payable on February 26.

“It’s been another successful six-month period for Charter Hall. Notwithstanding the challenges presented by COVID-19, we have been well insulated by our ongoing focus on long weighted average lease expiry (WALE) properties leased to high quality tenants,” Mr Harrison said.

“Wholesale Partnerships have had a particularly strong six months with new partnerships created with sovereign wealth fund GIC to house the Ampol portfolio, an expansion of our Aldi supermarket logistics partnership with Allianz, PGGM undertaking a new logistics partnership and QuadReal investing in a new development project at North Quay in Brisbane.”

Analysts welcomed the result, with Stuart McLean of Macquarie Equities maintaining his outperformance rating on Charter Hall.

“While revenue was slightly below expectations, good cost management control resulted in expanding earnings before interest and tax margin,” he said.

Lou Pirenc from Jarden Group said strong transaction volume and net fund inflows drove another upgrade to the company’s earnings guidance.

“We believe implied second half operating earnings per security (OEPS) looks conservative,” Mr Pirenc said in a note to clients.

“Strong demand for Australian real estate assets and its dominant position in alternative asset classes puts Charter Hall in a strong position to drive superior growth and returns.”

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Source: Thanks smh.com