The Charter Hall Group (ASX: CHC) share price is moving higher today after providing an earnings guidance upgrade.
Currently, the Charter Hall share price is up 5.12% to $20.75.
Charter Hall is a property investment and funds manager. The company deploys funds across a range of sectors including office, industrial, logistics, retail and social infrastructure.
Charter Hall rides property boom
The ever-increasing demand for property is fueling record asset valuations.
Charter Hall announced today it has revalued almost 100% of its properties resulting in a net valuation uplift of $3.5 billion.
Additionally, the business in conjunction with Hostplus has received shareholder approval to acquire ALE Property Group (ASX: LEP) which includes a portfolio of freehold pubs operated by Endeavour Group Ltd (ASX: EDV).
Subsequently, the business expects funds under management (FUM) to be $61.3 billion on December 31 across 1,506 properties.
FUM up, fees up more
With FUM increasing, the business has upgraded operating earnings guidance to 105 cents per security or a 72% uplift on FY21.
Just in November, the company guided for operating earnings of no less than 83 cents per security.
The latest guidance is a big jump for Charter Hall, which achieved operating earnings of 61 cents per security last financial year.
The bump in earnings guidance is largely a result of higher than anticipated performance fees.
When Charter Hall’s property portfolios rise in value above a certain benchmark, the business receives additional fees to reward the outperformance.
Unfortunately for shareholders who were hoping for a bigger distribution, Charter Hall retained its distribution guidance at a 6% increase on FY21 or about 23 cents per security.
Commenting on the guidance upgrade, Managing Director and CEO David Harrison said:
“It is pleasing to see the hard work we have put into curating and growing high quality portfolios for our fund investors over many years has delivered excellent financial returns, well above expectations and performance fees hurdles”.
“The resultant performance fees, while positive for the group, also highlights the outperformance delivered for investors given fund investors typically receive 80% of excess total returns”
Final thoughts
I suspect the reason for the unchanged distribution guidance is to temper shareholder expectations.
Charter Hall is likely benefiting from this current boom in property. Subsequently, I’d be cautious of extrapolating today’s guidance out into future periods.
FY23 could potentially be much closer to FY21 than FY22.
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