The Charter Hall Retail REIT held its AGM this week, with headwinds being revealed against its strategy of portfolio renewal. The objective of the REIT is to be the leading owner and manager of convenience-based retail, focused on the everyday needs of customers. The REIT seek to achieve this through the three key pillars of; active asset management, enhancing portfolio quality, and prudent capital management. This requires the REIT to maintain the right mix of retailers, providing the best offering possible in an attractive Centre as possible. In Charter Hall’s own words, they are “constantly looking for opportunities to divest lower growth centres and replace them with assets with better future prospects.” How many of the 59 assets in the portfolio are identified as lower growth centres is unkown, however it appears to be a strong focus for the REIT. In 2018, Charter Hall Retail REIT sold 15 assets worth $309M and acquired one at Leopold for $117M and settled two others from the previous year. The average capitalisation rate of the centres sold was 6.3%. The average capitalisation rate of the centres bought was 6.0%. The dilutionary impact of this change was a headwind to the earnings and distribution growth for FY18. The prospect of further asset sales having a similar dilutionary impact is quite high, despite this, the REIT is forecasting an increase of 2% in operating earnings in FY19. Key Financial Highlights for FY18 were; NTA per unit of $4.22 Distributions per unit of 28.2c Portfolio Value $2.8Bn up 1% Occupancy 98.1% MAT growth 2.2% Specialty Leasing Spreads 1.3% NPI growth of 1.8% See presentation
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