CHC is a REIT/ real estate fund manager and unlike pure REITS,...

CHC is a REIT/ real estate fund manager and unlike pure REITS, does not pay out all of their EPS to shareholders, with projected EPS of 75c and DPS of 45c for next year. Look through gearing was 31.5% at the December half, so the gearing reflected in this result is a marginal increase.

The bulk of the earnings for CHC comes from the fund management business (EBITA of 423m out of 596m group EBITDA). I believe that the performance/ transaction fees will dry up for the foreseeable future, hence the projected drop in EPS. Looking at Slide 26, you will notice that these fees have halved.

With the interest rate at 4.1% (and rising perhaps?) and the Property Investment Yield at 4.4% (page 40), it would be difficult to persuade would-be investors in their funds to put money into their real estate funds, when they have better alternatives.

Moreover, there could be more writedown of the assets in their portfolio coming. 41% of their FUM portfolio is exposed to office. If you look at Dexus results presentation page 20, the average rent incentive (read discount) is 30%. If the work from home trend persists and CBD continues to hollow out, new rents going forward would have to come down and with that the property values. As CHC earns a management fee based on a percentage of the FUM, this would imply a decrease in these base fees as well.