Financial Analysis Of Charter Hall Group’s Property Investment Portfolio

Details

The Charter hall Group Company operating in the real estate sector is the biggest player in the Australian Property Group, which is having a total net asset of the basket of portfolio of property around $23.2 billion. The group manages various kinds of commercial residential and other kinds of real estate projects. The Group owns around 300 properties which includes commercial retail and industrial assets. The funding and the financial analysis of the group property constituted several important points and factors of the company, which included development funding, the average weighted cost of capital, the return generated by the company from the investment activity in the form of the internal rate of return and others. Cash flow analysis and the market capitalization of the company were some of the important points covered under the analysis section. There were several financial ratios and the key performance indicator for the company were evaluated in order to determine the financial status of the company and for conducting an operational analysis of the company (Henderson, Mallett and McCann 2016).

The Charter Hall Property Trust Group has a dynamic nature of the business under which the real estate property sector it operates as the funding requirement for the Group varies according to the property portfolio and the structure of the property it undertakes (Malhotra and Malhotra 2018). The group aims at maintaining the flexible line of credit for the different kind of investment requirement by maintaining the committed line of credit for the Group. In the current financial year 2018, the group will be completing with the several key initiatives for the restructuring of its debt-funding platform (Reddy and Wong 2016). The group current debt structure has been replaced and restructured with the $200 million credit top up facility available for the group and an additional $20 million which will be used by the group company for the bank guarantees which will have a maturity till the financial year 2023.

In May 2018, The Charter Hall Trust Property Group also issued the bond, which amounted for an all total of U.S $ 175.0 million with a fixed coupon rate on the same with a maturity rate of 10 years and the same was issued as US Private Placement debt (USPP).

The level of debt and the level of equity in the company and the associated rate of the same determines the weighted average cost of capital for the company. The weighted average cost of capital shows the net amount at which the borrowings of the company is done and the relevant interest or the financing cost paid by the company. The weighted average cost of capital for the company was determined at the pre-tax discount range of about 14-16%. The total amount of debt exposure for the group was considered to be at a very minimum level as there was no significant than the equity exposure for the group (Anderson, Benefield and Hurst 2015). The cost of equity was the only factor which was computed in calculating the weighted average of the capital and the same was determined using the formula:

Development Funding

Cost of Equity (Ke) = Risk Free Rate of Return + Beta (Return on Market – Risk Free Rate of Return)

The internal rate of return or the total annualize return for the company shows the net amount earned by the company from the various kind of investment done by the company based on the operating and the investment activity. The internal rate of return is quite beneficial measurement ratio for the company in order to determine the financial success of the company (INVESTSMART 2018). The Capitalization rate is the total return represented as the total calculated income earned from the investment done and the same expressed as a percentage of the total income earned. The capitalization rate considered for the year 2018 was around 6-7.8% and was 6.8-8.5% for the year 2017 (Wiley 2014).

The burden of the management is primarily seen in the core operation area of the company that is management of the portfolio of basket of real estate for the company. Generation of a sustainable set of return for the stakeholders of the company in the long-term horizon period is the key focus for the management of the company. Environmental Concerns, Social Concerns and the Business Operations of the company with respect to the management of the retail and commercial property management are some of the key issue addressed as the management burden for the company. The company is not having any exposure to the financial risk or the debt financing as the company operates in the real estate sector. It is already having a high amount of business risk as the real estate is already cyclical in nature the additional debt financing can also increase the financial risk for the company but at the same time can also provide a tax advantage for the company (Olanrele et al. 2018).

The net tangible assets of the company is calculated for the group by evaluating the total asset of the company and deducting the intangible asset of the company such as goodwill and patents. The key tangible asset of the company was identified as investment done by the company, investment properties and the property plant and equipment, which formed up the important constituent of the total tangible asset of the company. The total asset of the company was around 2013.6 million dollars for the year 2018 and the net intangible asset for the company for the same year was observed to be around 62.7 million dollars constituting the net tangible asset for the company to be around 1950.9 million dollars.

The unit price for the company was determined by the fair value of the investment property held by the company divided by the total number of unit holder available. The group is exposed with determining the unit price of the group with available investment property portfolio of the company. The key determination in the unit price evaluation of the underlying properties of the companies is approved and evaluated by the respective board or the investment committee of the group (Charter Hall 2017).

Average Weighted Cost of Capital

The effective tax rate for the company was determined using the income tax expenses paid by the group company on the total profit earned by the company. The income tax expense for the company in the year 2017 and 2018 was around 23.6 and 26.5 million dollars. The effective tax rate for the company was around 9.5% and 8.5% for the year 2018 and 2017 respectively. The deferred tax liabilities and asset for the company was calculated and recognized based in the temporary differences in the tax rate (Suri 2017).

The gearing ratio for the company was not found as the debt exposure for the company was not found The Company has a negligible amount of exposure towards the debt or the long-term borrowings of the company. The current liabilities of the companies was only in the form of trade payables and short-term borrowings of the company.

The Cash flow for the company is primarily derived from the core business operation of the company and from the investing activities of the company. The Cash flow from operating activities of the company primarily constituted the receipts from the customers for the sale of properties and interest received from investment in the form of dividends. The cash flow for the Charter Hall Group was around 169.1 million and 156.3 for the year 2018 and 2017 respectively. The company’s primary investing activities was primarily based on the investment in associates and joint ventures and investment in properties. The net cash outflow from investing activities for the company was primarily seen in the year 2018 as $131.6 million and $257.6 million respectively in the year 2017. The cash flow from financing activities of the company primarily constituted the proceeds from the borrowings, proceeds from issue of securities and repayment of borrowings of the company (Mi, Benson and Faff 2016).

The market capitalization for the Charter Hall Group was around 3.30 billion dollars which shows the market value of the company outstanding share which are publically traded in the market. The share price for the company currently is around $7.12 where the company stocks has been performing well in the last year and has given good set of return for the investors and the stakeholders of the company.

The micro property data for the company shows the key financial analysis of the company conducted for evaluating the financial performance of the company and the evaluation of the same with the help of a future prospective analysis (Sun, Titman and Twite 2015). There were several key performance indicator evaluated and analysis done in order to review the operating, investment and the overall financial activity of the company (Chuweni, Eves and Blake 2017).

Table 1: Financial Analysis of Charter Hall Group

Conclusion

The key analysis of the Group was performed after assessing the financial report of the company and after evaluation of the financial report of the company. The key financial indicators and percentages were evaluated using the financial statement of the company and the performance of the company was evaluated in the last two year. There were several financial ratios and the key performance indicator for the company were evaluated in order to determine the financial status of the company and for conducting an operational analysis of the company.

References

Anderson, R.I., Benefield, J.D. and Hurst, M.E., 2015. Property-type diversification and REIT performance: an analysis of operating performance and abnormal returns. Journal of Economics and Finance, 39(1), pp.48-74.

Charter Hall. (2017). FS 2017 pg.62. New South Wales, Australia: Charter Hall.

Charter Hall. (2018). About Us. Retrieved 10 17, 2018, from https://www.charterhall.com.au: https://www.charterhall.com.au/about/

Chuweni, N.N., Eves, C. and Blake, A., 2017. Optimising Malaysian Shariah-compliant Real Estate Investment Trusts: Perspective of REIT managers. Pertanika Journals Social Sciences & Humanities, 25(S), pp.89-100.

Henderson, B., Mallett, J. and McCann, C., 2016. An Empirical Analysis of Non-Traded REITs. The Journal of Wealth Management, 19(1), p.83.

INVESTSMART. (2018). Company Financials. Retrieved 10 18, 2018, from https://www.investsmart.com.au/shares: https://www.investsmart.com.au/shares/asx-bwp/bwp-trust/financials

Malhotra, R. and Malhotra, D.K., 2018. An Empirical Analysis of the Performance of Residential Real Estate Investment Funds. In Applications of Management Science (pp. 21-35). Emerald Publishing Limited.

Mi, L., Benson, K. and Faff, R., 2016. Further evidence on idiosyncratic risk and REIT pricing: a cross-country analysis. Accounting Research Journal, 29(1), pp.34-58.

Olanrele, O.O., Said, R., Daud, M.N. and Ab Majid, R., 2018. REIT Financing of Real Estate Development Projects in Nigeria: Why Not?. Journal of Design and Built Environment, pp.102-115.

Reddy, W. and Wong, W., 2016. Australian interest rate movements and A-REITs performance: A sectoral analysis. In AsRES 21st International Conference (pp. 1-11). Asian Real Estate Society.

Sun, L., Titman, S.D. and Twite, G.J., 2015. Reit and commercial real estate returns: A postmortem of the financial crisis. Real Estate Economics, 43(1), pp.8-36.

Suri, S., 2017. AvalonBay Communities: REIT Analysis and Valuation (Doctoral dissertation).

Wiley, J.A., 2014. Illiquidity risk in non-listed funds: Evidence from REIT fund exits and redemption suspensions. The Journal of Real Estate Finance and Economics, 49(2), pp.205-236

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