Funds manager Charter Hall Group has posted a bumper 20 per cent increase in net profit to $173.3 million for the first half of the year on the back of increased valuations and management fees.
Managing director David Harrison revealed the result meant the group has also paid its first tax bill, $10.6 million in the six months to December 2016.
"We are paying a 30 per cent effective tax rate in our funds management business but it's applied to our taxable income. The majority of our income is not taxed at the source but in the hands of investors," Mr Harrison said.
The strong result included $34.8 million in performance and transaction fees which attracted a strong line of questioning from analysts in a briefing on the results.
Macquarie Equities Research analysts said the fees were a big driver and much higher than they had forecast.
"We note the first half number is more than full year 2016 ($30.7 million) in entirety."
Mr Harrison defended the result, telling analysts: "We have been flagging for nearly two years that we've got a strong pipeline of performance fees coming through for the next five years because of a number of funds and partnerships."
Analysts J.P. Morgan suggested the "major spike in transaction and performance fees" would make this result a "challenging base year from which to grow".
The positive outlook in the commercial property sector has triggered a forecast increase in earnings for the group – 24 per cent growth in pre-tax earnings and about 12 per cent in the after-tax operating earnings per security.
After-tax operating earnings for the period increased 32 per cent to $80.8 million on the previous period , or earnings per security of 19.6¢ a share.
Charter Hall's property funds under management increased by 8.6 per cent to $19 billion in the six months to December 2016, reflecting a 16.1 per cent annual growth rate since June 2010.
The growth was made up of $800 million in revaluations, $400 million in net acquisitions and $300 million in development.
Major developments completed and leased up in the period included 333 George Street in Sydney and the 1PSQ project in Parramatta.
The portfolio includes 314 properties covering 350,000 square metres of office, industrial and retail space leased to 2644 tenants.
However Mr Harrison would not be drawn on a question about the further compression of capitalisation rates which have shrunk 29 basis points in the past six months to 6.19 per cent.
"It's a bit like gambling at the casino," he joked.
"Our view is the appetite for real estate is not waning. There is a long-term structural movement of capital to real assets both property and infrastructure."
"That excess of demand over supply. If you have got excess demand over supply you are going to see price growth," he said.
Despite the result, dividends are expected to remain at the lower end of the distribution range, with the group keen to use its cash to fund more developments and acquisitions.
The Charter Hall interim dividend is 14.4¢ a share, up from 13.3¢ a share in the same period last year. The dividend in the second half of the year is expected to be about 10¢ a share, Mr Harrison told BusinessDay.