Along with prices, the UBS buy rating reflects Charter Hall’s ability to continue raising and deploying third party equity and debt while accessing off market transactions.
Underpinning that bullish outlook is the composition of Charter Hall’s portfolio, with UBS pointing to the resilience in valuations for office tower – they comprise 46 per cent of the portfolio – as well as for logistics properties, 21 per cent, and the 19 per cent of assets held on long leases.
Jarden analysts have also upgraded the property fund manager, noting that its market update last week had addressed investor concerns, including over its balance sheet.
“While investor focus rightly or wrongly was/is on Charter Hall’s look-through gearing, we note there is no cross collateralisation across the funds,” the analysts wrote in a client note.
“We are not concerned with Charter Hall’s solvency, noting it can cover all group expenses from base management fees alone.”
On the upside, the analysts were not persuaded by some market concerns that Charter Hall’s ability to grow its funds under management would be crimped by its capital partners “possibly shutting up shop due to travel restrictions and/or a lack of access to product”.
“We think on the latter point, there could be sale and leaseback opportunities that present themselves in Australia if non-REITs need to reduce leverage by selling any owner-occupied real estate assets.
“Thematically, we see Charter Hall as one of the few REITs willing and able to take advantage of this potential sale and leaseback market.”
The analysts said the outlook for Charter Hall’s 2021 financial year earnings per share was always going to be lower due to elevated performance fees in financial year 2020.
“However, we still see scope for growth in ‘recurring income’, despite our lower funds under management growth assumptions.”
