Charter Hall Long WALE results show strong progress

9 August 2021

Charter Hall have issued the FY21 results for the $5.6bn Charter Hall Long WALE REIT showing a 3.2% growth in earnings per security.

The REIT seeks to acquire high quality real estate assets leased to corporate and government tenants on long leases. The Trust has built up an impressive portfolio of 468 assets across a range of sectors including office, industrial, retail, fuel stations & social infrastructure assets, providing investors with a 5.9% distribution yield forecast for FY22 at todays price of $5.10.

The REIT grew by $2.0bn (62%) over the past 12 months, following $1.4bn of acquisitions and $523m of valuation gains. The significant growth has required equity the Trust to raise $623m of equity and increase its gearing to 31.4% (up from 24% in FY20).

Avi Anger, Charter Hall Long WALE REIT Fund Manager commented: “FY21 has seen the CLW portfolio continue to grow in a measured way, enhancing portfolio quality, improving asset and tenant diversification and providing investors with a growing income stream and capital growth. The portfolio is highly diversified across 468 properties valued at $5.6 billion. CLW provides security and continuity of income with a WALE of 13.2 years and 48% of leases that are NNN. These characteristics provide the REIT’s income and distributions significant insulation from market shocks. The 16.8% growth in NTA and 3.2% increase in distributions over the year demonstrates the resilience and attractive nature of our portfolio and the security of income it provides.”

The REIT’s Weighted Average Lease Expiry has drifted shorter, reducing from 14.0 years to 13.2 years as acquisitions have typically held shorter leases.

The REIT reconfirms that based on information currently available and barring any unforeseen events or further COVID-19 impacts, CLW provides FY22 Operating EPS guidance of growth of no less than 4.5% over FY21 Operating EPS of 29.2 cents.

The REIT has jumped 7% in price since the 1s July 2021, half of which has suspiciously occurred in the last 5 days, just prior to todays’ announcement.

The Charter Hall Long WALE REIT is on our Top Picks List. The REIT commenced the year with a security price of $4.41 and undertook a capital raising to raise $652m. The REIT provided a 29.2c distribution for the FY21, equating to a 6.6% yield, which together with a 16.8% lift in NTA would provide investors with a total return of 23.4%.

Key financial and operational highlights for the period are:

Financial highlights:

  • Operating earnings of $159.0 million, or 29.2cpu, up 3.2% on the prior corresponding period (pcp)
  • Statutory profit of $618.3 million
  • Distributions of 29.2cpu, up 3.2% on pcp
  • NTA of $5.22, up 16.8% from $4.47 at 30 June 2020
  • $523 million net valuation uplift, representing 12.1% uplift for FY21
  • $652 million of equity raised in FY21
  • Balance sheet gearing of 31.4%, in the middle of the target range of 25% – 35%
  • Assigned Moody’s Baa1 investment grade issuer rating

Operating highlights:

  • Portfolio weighted average lease expiry (WALE) of 13.2 years, providing long term income security
  • $5.6 billion property portfolio, up from $3.6 billion as at 30 June 2020
  • $1.4 billion of property acquisitions
  • 48% triple net leases (NNN) across the portfolio where the tenants are responsible for all outgoings, maintenance and capital expenditure
  • Portfolio cap rate firmed 65 bps from 5.42% at 30 June 2020 to 4.77%.


Portfolio update

Acquisitions:

During FY21, CLW announced $1.4 billion of new property acquisitions which contributed to enhancing portfolio quality, sector diversification and strengthening the quality and diversification of tenants.

According to RESourceData, these transactions comprised;

  • $638 million of Long WALE Retail acquisitions
    • a 50% interest in the David Jones, Sydney CBD flagship store with a 20-year NNN lease to David Jones;
    • bp New Zealand Portfolio of 70 convenience retail properties on NNN leases with a 20-year WALE to bp Oil New Zealand;
    • 314 Bourke Street Melbourne VIC – a 33.3% interest in the Myer Bourke Street Mall, Melbourne flagship store with a 10-year net lease to Myer;
    • 459 Pumicestone Rd Caboolture QLD – a Bunnings property to be developed in Caboolture, Brisbane and
    • 1400 Safety Bay Rd Baldivis WA – an established Bunnings property in Baldivis, Perth
    • 50% interest in The Parap Tavern, Darwin and Terrey Hills Tavern, Sydney, both leased to Endeavour Group on initial 15-year NNN leases and a
    • 100% interest in the Ampol travel centre located in Redbank Plains, Brisbane
  • $361 million of Social Infrastructure acquisitions comprised
    • 76-78 Pitt Street, Sydney- a Telco Exchange property at with a 10-year NNN lease to Telstra and
    • 17 O’Riorden Street Alexandria NSW – a 50% interest in a life sciences property leased to the Australian Red Cross in Sydney, with 9.6-year lease term remaining
  • $311 million of office acquisitions consisting of
    • 25 Cowlishaw Rd Tuggernong ACT – 50% interests in three modern, long WALE Commonwealth Government properties with first generation leases, comprising an A-grade office building in Tuggeranong, Canberra, leased to Services Australia,
    • 913 Whitehorse Rd Box Hill VIC – an A-grade office towers in Box Hill and
    • 520 Smollet Street Albury NSW – an A grade office building leased to the Australian Tax Office
  • $83 million of Industrial & Logistics acquisitions comprised of
    • 29 Ron Boyle Crescent Carole Park QLD- a 100% interest in a prime industrial property in the core logistics market of Carole Park, Brisbane leased to Simon National Carriers on a 15-year net lease

Valuations:

Overall, the total property portfolio has increased by approximately $1.93 billion to $5.56 billion for the period, driven by $1.4 billion of net acquisitions and $523 million in property revaluation uplift.

At the end of the period, the REIT’s diversified portfolio is 98.3% occupied and comprised 468 properties with a long WALE of 13.2 years. The portfolio weighted average capitalisation rate firmed 65 bps during the period to 4.77% as at 30 June 2021.

Strengthening the REIT’s capital position

During FY21, CLW completed several capital management initiatives, including:

• $652 million of equity raised during the period
• Issued $700 million of Australian dollar medium term notes (A$MTN) across 7, 8.5 and 10 year maturities at a weighted average all-in floating cost of 1.2% at issue
• Extended the maturity of the REIT’s syndicated bank facility by three years from March 2023 to March 2026 with reduced margin
• Assigned Moody’s Baa1 investment grade issuer rating

Following these capital management initiatives, CLW has a weighted average debt maturity of 5.6 years and a weighted average hedge maturity of 3.8 years as at 30 June 2021. Pro-forma balance sheet gearing of 31.4% remains in the middle of the target 25–35% range and look-through gearing is 39.7%.

FY22 Guidance

The REIT reconfirms that based on information currently available and barring any unforeseen events or further COVID-19 impacts, CLW provides FY22 Operating EPS guidance of growth of no less than 4.5% over FY21 Operating EPS of 29.2 cents. This equates to a forecast FY22 EPS of 6.4% based on CLW’s closing price as at 1 July 2021 of $4.78.

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