Acquisition of Z Energy Portfolio, sale of Coles Distribution Centre and earnings upgrade

29 August 2022

Charter Hall Retail REIT has further expanded its relationship with Ampol Limited, growing its exposure to income from triple net (NNN) leases directly linked to CPI. CQR has entered into an agreement to acquire a 49% interest in a portfolio of 51 Long WALE convenience retail properties leased to Z Energy Limited. The remaining 51% interest will be retained by Z Energy. This new partnership represents an extension of CQR’s existing relationship with Ampol and follows Ampol’s acquisition of the Z Energy business in New Zealand.

CQR’s 49% interest has been acquired for AUD $120 million (NZ$132 million)1 on a 5.50% cap rate with annual NZ CPI rent escalations (2% floor, 5% cap), triple net leases (NNN) and a 15.3-year WALE. 78% of the portfolio’s 51 assets are located in metropolitan areas. The transaction is expected to settle at the end of October 2022.

Further, CQR is pleased to announce it has divested its 52% interest in the Coles Distribution Centre, Adelaide (CDC) at $150m to a Charter Hall managed fund. CQR bought its stake in the Coles DC on a 5.75% yield, and sold it for $38.2 million more on a yield of 4.25%.

The distribution facility is located in the Adelaide’s prime industrial precinct of Edinburgh Park, South Australia, approximately 25km from Adelaide CBD and is utilised by Coles as its sole distribution centre to service all of its retail stores in South Australia and the Northern Territory.

The $95.3 million proceeds are net of asset level debt and will be used to fund the acquisition of the Z Energy portfolio. The transaction is expected to settle at the end of October 2022.

Charter Hall Retail CEO, Ben Ellis stated: “We continue to actively curate the CQR portfolio to drive earnings growth for investors. CQR’s investment in the CDC has been highly successful. We’re now looking to take advantage of strength in the demand for industrial and logistics assets and to recycle these proceeds into an attractive NNN portfolio of Long WALE convenience assets with CPI exposure. Following the settlement of these transactions, 37% of major tenant rent reviews are CPI based and 33% NNN leases. These two transactions have both been secured off-market and are a result of Charter Hall’s strong tenant and investor partnerships.”

CQR’s prior earnings guide was for FY23 earnings per unit of no less than 28.6 cents per unit and distributions per unit of no less than 25.7 cents per unit.

In light of today’s transactions, barring unforeseen events, FY23 earnings per unit is expected to be no less than 28.7 cents per unit representing growth of no less than 1% over FY22 earnings per unit.

FY23 distributions per unit are expected to be no less than 25.8 cents per unit representing growth of 5.3% over FY22 distributions per unit.