Charter Hall Group (ASX: CHC) shares were among the biggest gainers in the S&P/ASX 200 Index (ASX: XJO) yesterday. In fact, Charter Hall’s real estate investment trusts (REITs) have all been performing strongly in the August earnings season.
So, why is it that Charter Hall is managing to surprise investors right now?
How the Charter Hall REITs have performed in August
The Charter Hall Group share price jumped 6.7% higher yesterday to close the day at $12.00 per share. That came as the Aussie real estate manager reported its full-year earnings headlined by a 33% increase in funds under management to $40.5 billion.
Operating earnings jumped 46.3% to $322.8 million with net profit climbing 47% higher and distributions up 6% to 35.7 cents per share.
It’s not just the group that reported strong earnings, but its underlying REITs on the market.
The Charter Hall Long WALE REIT (ASX: CLW) share price is up 6.3% in August. That came on the back of a strong earnings result bolstered by lengthy weighted average lease expiries (WALEs) and strong distributions.
Shares in the Charter Hall Social Infrastructure REIT (ASX: CQE) have also been on the move. This Charter Hall REIT is up 12.1% in 2 weeks after another good FY20 result.
The Social Infrastructure REIT increased its WALE by 28.3% to 12.7 years with gross asset values up 4.4% to $1.3 billion.
What’s causing the share price surges?
For one, it’s a fairly pessimistic market out there. I would say that many investors are bearish on the real estate sector as evidenced by heavy share price falls for the Aussie REITs.
However, Charter Hall REITs have thus far been able to deliver stable earnings and/or solid growth forecasts.
Asset values have held up despite the coronavirus pandemic, which is good for the Aussie REITs. It helps that Charter Hall doesn’t have significant exposure to under pressure industries like retail.
I think the long WALEs across Charter Hall’s portfolios are also a big benefit. By locking in revenue for the long-term, short-term fluctuations in the business cycle have less of an impact.
Strong anchor tenants and focus on high-growth areas like logistics and social infrastructure are also good for earnings.
Overall, I think there is a lot to like about the Charter Hall REITs, particularly given the big falls in 2020. We’re seeing some momentum build in August and that may continue into 2021.
Foolish takeaway
I think the fundamentals for Charter Hall REITs are solid right now. However, the big test will be how the portfolios hold up when the government stimulus safety net is removed in the coming months.
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Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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