This article is from the Australian Property Journal archive
THE resilience of convenience retail and a portfolio heavy with properties with long leases tied to inflation has helped Charter Hall Retail REIT (CQR) to a strong set of interim numbers.
The trust, which owns a $4.44 billion portfolio of convenience retail and petrol station assets, booked a 1.6% uplift in operating earnings in the first, while distributions grew 11.1% to 13c.
Shopping centre portfolio occupancy levels rose to 98.6%, and specialty leasing spreads came in at 3%, up from 2.3% at the end of June.
Statutory profit was $124.7 million, down from the revaluations-driven $368.6 million a year earlier, but portfolio valuation growth of $119 million or 2.8% was still recorded, driven by income growth.
“CQR’s unique portfolio of Long WALE and convenience retail assets with 59% of portfolio income growth linked to inflation continues to produce meaningful income growth for investors,” Charter Hall Retail’s CEO, Ben Ellis said.
“The blend of long WALE assets providing income growth directly linked to inflation, combined with CQR’s shopping centres providing inflation-linked income growth through turnover rent mechanisms, means CQR investors are currently enjoying growing income and distributions, despite the rapid rise in interest rates.” He said the resilience was recognised in the upwards valuations.
Total portfolio cap rate shifted upwards slightly to 5.28% during the period.
During the period CQR announced the acquisition of a 49% interest in a portfolio of 51 long WALE convenience retail properties leased to Z Energy Limited in New Zealand, for $120 million, following Ampol’s acquisition of Z Energy. The deal was struck on a 5.50% cap rate with annual New Zealand CPI rent escalations capped at 5%, triple net leases and a 15.3-year WALE.
It also offloaded its 52% interest in a Coles distribution centre in Adelaide at book value.
Saranga Ranasinghe, vice president, Moody’s Investors Service, said CQR’s results were credit positive, as the group reported stable earnings growth and sound operating metrics, “which highlights the resilience of its portfolio of non-discretionary focussed retail assets”.
“While we expect non-discretionary retail to be resilient to challenging retail conditions, some specialty retailers could remain exposed to rising interest rates and cost-of-living pressures. However, CQR’s specialty tenants tend to trade in categories that are less discretionary than the portfolios of other rated REITs and are thus better positioned to face these macro headwinds.”
CQR reaffirmed that FY23 earnings per unit is expected to be no less than 28.7c per unit, representing at least 1.0% growth, and reaffirmed distributions per unit would be no less than 25.8c per unit, showing growth of no less than 5.3%.
