Charter Hall's REIT benefits from $1.4b expansion
Charter Hall’s Long WALE REIT grew its portfolio from $2.1 billion to $3.6 billion and increased its weighted average lease expiry across its properties to 14.5 years in the first half of fiscal 2020, to claim the title as the largest owner of long-lease real estate of any ASX-listed REIT.
In the last six months, CLW as it is known and which invests in properties leased to tenants with strong covenants on long-term leases, has sought to build a more diverse and resilient investment proposition.
The $864.7 million in new equity raised was put towards $1.4 billion of acquisitions, including a stake in 37 Telstra Exchanges, an interest in 225 BP petrol station properties, and two CBD office assets.
The sheer size of the fund’s portfolio, with an increase in net property income from $48 million to $75 million, accounted for a strong boost in operating earnings of $52.2 million, compared to $31.1 million a year earlier. That equates to 14c per unit, up 8.5 per cent.
Also contributing to its earnings growth was the annual weighted average rent increases across the portfolio of 2.7 per cent.
Almost 50 per cent of CLW’s portfolio are leased on a triple net basis where tenants are responsible for all outgoing, maintenance and capital expenditure, making income and expenses highly predictable.
The fund recorded a statutory profit of $80.5 million, compared $26.3 million in the same period a year earlier.
The strong industrial and office markets have worked in CLW’s favour, with the compression in cap rates across the board driving an $83 million uplift in the fund’s property revaluations.
Market conditions have also increased investor demand for commercial real estate and allowed CLW to secure debt at a low cost, with CLW adding 266 assets to its rapidly growing portfolio, CLW fund manager Avi Anger said.
“The market is very favourable for us. We are able to secure debt at a low cost as a result of the low interest rate environment, and also as a relative investment we are attractive because we are offering a 5.2 per cent distribution yield versus cash in the bank, which people are not getting very much on at all,” Mr Anger said.
Mr Anger acknowledged finding quality assets with value-add opportunities to drive earnings growth was a challenge facing all investors in a competitive, low interest rate landscape was but said CLW was well-placed to deliver growth just through active management of its properties and its existing leases.
“We are focused on maximising the value of our portfolio, working with our tenants to extend leases, on keeping our costs as low as possible, and potentially extending the duration of our debt,” Mr Anger said.
“And then we’ll assess opportunities as they arise, but they have to be WALE and earnings accretive and make sense to our investors and provide diversification benefits as well. So if opportunities meet those criteria we will certainly look at them.”
