Charter Hall Office REIT chief executive Adrian Taylor in Sydney. Picture: Jane Dempster
Source: The Australian
CHARTER Hall Office REIT, the listed property trust recently under siege from US hedge funds, has warned its rental growth may be slower than expected due to weak global economic sentiment.
The warning comes as the real estate investment trust (REIT) moved out of negative territory to post a $69.4 million net annual profit yesterday.
The result compared to a $90.7m loss in the previous 12 months to June 30, as values fell in the wake of the global financial crisis.
Chief executive Adrian Taylor said rental growth for office buildings in Sydney and Melbourne was expected to be weaker than the generally accepted range of 5-8 per cent a year.
“I would soften the rate of growth, simply because it is well understood that there is a strong correlation with global economic growth and demand for Australian office space.”
Mr Taylor said the exact rate of growth was difficult to predict because of market volatility.
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“What’s that doing in the short term? Probably delaying some decisions as corporations and decision-makers are reacting and responding and trying to understand the signals.”
However, he added that while the Australian office markets were not immune to global economic conditions, they remained in good shape.
Yesterday, the trust reported annual operating earnings of $133.6m, or 27.1c per unit, which was ahead of half-year guidance of 26c a unit.
But operating earnings were down 8.4 per cent on the previous year after a major US tenant vacated its Atlanta building.
Charter Hall Office REIT’s full-year distribution was up 9.5 per cent to 20.25c per unit.
During the 2011 financial year, the trust struck a deal to sell its US portfolio to Boston-based Beacon Capital Partners for $US1.7 billion.
The sale followed pressure from a group of US-based activist hedge funds on its register led by Orange Capital, which recently tried unsuccessfully to oust Charter Hall as the trust’s manager and appoint the Bill Moss-chaired Moss Capital as its replacement.
Mr Taylor said while everyone knew Charter Hall Office had “its fair share of challenges” during the year, management had maintained its focus.
“I will say we have had some brief exchanges with Orange (Capital) post the unitholder meeting and the door is open to speak with Orange the same as it is with any other investor.”
Charter Hall Office REIT also refinanced or repaid about $1.5bn of loans.
During the year, its 19 Australian buildings were 96 per cent occupied and its 14 US properties were 82 per cent full.
The trust’s portfolio was worth $3.4bn, net tangible assets were $3.76 per unit and look-through gearing fell from 44.9 per cent to 42.9 per cent, with the trust targeting a gearing level of between 25-35 per cent after finalising the sale of the trust’s US assets.
Mr Taylor said the Australian portfolio’s book value increased by $50m during the year to $1.9bn with the majority of the increase driven by its strongest leasing performance in six years.
Barring unforeseen circumstances, investors could expect to receive operating earnings from the Australian business of between 17.5-18c per unit with an additional earnings contribution from the US business until its sale.
The payout ratio for distributions would be 75-90 per cent.
Unitholders would also receive a pro-rata special distribution from the US sale proceeds of about $1.08c per unit. “Investors are expected to benefit from the REIT’s continued execution of its strategy to become an Australian-focused, conservatively geared A-REIT with improved quality of income and the capital growth from its high-quality portfolio,” Mr Taylor said.
JPMorgan analyst Michael Scott said the result was above expectations. The group provided more comfort that the US asset sale would proceed, despite recent market volatility.