Charter Hall Acquire Childcare Portfolios for $134m

22 December 2021

Charter Hall Social Infrastructure REIT has acquired two childcare portfolios comprising 21 properties for a total purchase price of $134.3 million reflecting a passing yield of 4.6%.

The first portfolio comprises eighteen quality operating childcare centres located throughout Western Australia. Thirteen of the centres are located within metropolitan Perth with the remaining five located regionally. The transaction was sourced off-market.

The portfolio has a current WALE of 12.5 years and WARR of 3.4% with 100% of the rental income ($4.6 million) underpinned by Australia’s two largest childcare operators, Goodstart Early Learning Limited and G8 Education Limited offering a strong national tenant covenant profile.

The portfolio comprises a total combined site area of 47,157 sqm, providing accommodation for 1,752 long day care places. The total purchase price of $100 million reflects a purchase yield of 4.63% with simultaneous exchange and settlement of all properties occurring on 21 December 2021.

The second portfolio is a sale and leaseback agreements to acquire three childcare centres located in metropolitan Melbourne. On completion, the portfolio will comprise three newly constructed modern childcare centres located in metropolitan Melbourne, at Ivanhoe, Mickleham and Craigieburn, providing accommodation for 345 long day care places.

The portfolio will be 100% leased to Nino Early Learning, a premium Melbourne operator, for an initial term of 20 years, on a triple net lease structure, with fixed annual rent reviews of 3.0%.

The total purchase price of $34.3 million reflects a purchase yield of 4.5%. Settlement for the Mickleham property will occur in January 2022 and settlement of the Ivanhoe and Craigieburn properties expected to occur in February 2022, following completion of these centres.

CBRE’s Australian Healthcare and Social Infrastructure team of Sandro Peluso, Jimmy Tat and Marcello Caspani Muto managed the Expressions of Interest sale campaign on the Nino Portfolio.

“Charter Hall has a keen understanding of demand and supply fundamentals like strong population growth, workforce participation and civic needs,” Mr Peluso said.

“Their focus on early learning centres is reflective of their financial insight an forward thinking approach in a society with ever-changing needs.

“With a substantial volume of conforming bids received, it is clear that investment groups who historically have not played within the childcare space are pivoting toward the sector at a rapid rate,” Mr Peluso added.

“There is particularly strong interest in leaseback transactions, which have grown in popularity in recent years and are proving to be highly attractive, as a flood of investors seek long-term income streams.

“In turn, these transactions give owner-occupiers an opportunity to reinvest the sale proceeds back into their core businesses.”

“This sale demonstrates the appetite and level of competition from domestic and international investment groups who now mandate that their portfolios include social infrastructure assets or have created specific funds to target the sector,” Mr Tatt said.

Travis Butcher, Fund Manager of CQE commented: “We are pleased to add these quality childcare properties with strong property fundamentals to the portfolio and further our tenant customer relationship with these three operators. The addition of these assets will result in CQE’s gross assets exceeding $1.9 billion and continuing to be the largest listed social infrastructure property fund in Australia.”

The portfolio transaction acquisitions will be funded from CQE’s existing debt facilities. In December 2021, CQE increased its debt facilities to $700 million with the additional $100 million being provided by an existing financier. This will provide CQE with investment capacity of approximately $120 million after adjusting for these portfolio acquisitions and other contractual commitments.

CQE’s gearing will increase to approximately 30% as a result of these transactions and the recently announced $175.4 million portfolio valuation uplift.

As a result of the transaction, Charter Hall confirmed that based on information currently available, continued tenant performance and barring any unforeseen events or deterioration in the COVID-19 environment, the FY22 forecast distribution guidance has been increased from 16.9 cpu to 17.2 cpu, an increase of 9.6% from FY21. CQE will continue to pay quarterly distributions and has previously announced the December quarter distribution of 4.225 cents per unit which will be paid on 21 January 2021.