Charter Hall Retail REIT Annual Unitholder Meeting 2018
This is my eighth annual unitholder meeting as Chair and my sixteenth meeting as a Director of Charter Hall Retail REIT, or CQR, to use its ASX ticker code. It is also my last meeting in either capacity, as I stand down today and retire from the board.
It’s with great pleasure that I stand here having been associated with CQR from its early years, formerly as Macquarie Countrywide Trust and having helped steward its growth into the vehicle it is today.
When I joined the board in 2003, the CQR portfolio was worth a little over $1bn, consisted of 117 properties and the average property value was $8.6m. No property was more than 3.1% of the portfolio, 75% of net rental income was from anchor tenants, and the anchor tenant weighted average lease expiry (WALE) was 12.4 years.
A lot has changed in the intervening years. The former manager, Macquarie Bank, sold the management platform to Charter Hall. We went through the global financial crisis, with all the learnings and experiences that entailed. Throughout all this, the nature of retail also changed, as the retail experience become more lifestyle and destination orientated, while still meeting the everyday shopping needs of customers.
This was brought home to me very clearly when I recently visited our most recent acquisition, Gateway Plaza, Leopold in Victoria, two weekends ago. A centre that embodies convenience with two supermarkets, a discount department store and a Bunnings, with a great mix of food and speciality retailers and lots of convenient parking. It’s certainly a vast change from the retail offering of 2003.
Today the portfolio is worth almost $2.8bn, consists of 57 centres and the average property value is $56.4m. While the portfolio has transitioned significantly in terms of size, both in value and by asset, the core underpinnings of the trust are unchanged.
CQR has always been focused on non-discretionary food retailing, with a particular emphasis on supermarkets. This has not changed. While the absolute percentage of rental income from anchor tenants is no longer 75%, it’s still greater than 50%, derived predominantly from our supermarket tenants.
The anchor tenant weighted average lease expiry (WALE) is 10.7 years, little-changed from sixteen years ago. Again, the focus on stability of tenure from our major tenants has been a hallmark of this trust.
Importantly, while the size and value of the centres we have owned has grown, the benefits of diversification have been preserved. The largest single asset in the portfolio, The Gordon Centre, is still only 5% of the total portfolio value.
Our Strategy remains to be the leading owner and manager of convenience-based retail, focused on the everyday needs of our customers.
We achieve this through the three key pillars of active asset management, enhancing portfolio quality, and prudent capital management.
In practice, this means we look to ensure we have the right mix of retailers in our centres, working with our tenants to provide the best offering possible and making our centres as attractive as possible.
We actively manage the portfolio, constantly looking for opportunities to divest lower growth centres and replace them with assets with better future prospects. We redevelop our assets to keep them attractive and to maintain their appeal to customers. We also look to partner with our major tenants and align our development activities with theirs, ensuring a common interest in the success of our centres.
Throughout all this, we are always mindful to maintain the most prudent capital position we can.
A strong balance sheet provides the flexibility to respond to opportunities as they arise. In more recent years, capital partnering has also enabled CQR to access bigger assets with better future growth prospects, while preserving the diversification benefits already present in the trust.
Reshaping the portfolio
FY18 was a year of active asset management for CQR.
Over the course of the year we sold fifteen smaller, lower growth centres. These centres were sold on average at either book value, or a small premium to their book value.
The proceeds were used to reinvest in three high quality assets, being Highfields Village in Queensland, Salamander Bay in New South Wales and most recently in July, Gateway Plaza in Victoria. All three centres share the common characteristics of being the dominant convenience- based retail destination in their catchment. They are supermarket focused and cater for the food-based and everyday retail needs of the customers who live near them.
This rebalancing activity across the portfolio was not without cost. The average capitalisation rate of the centres we sold was 6.3%. The average capitalisation rate of the centres we bought was 6.0%. The dilutionary impact of this change was a headwind to the earnings and distribution growth for FY18. However, it was the right decision to make to strengthen the long- term growth prospects of CQR. I’d like to thank CQR unitholders for their patience as this repositioning took place.
Corporate Responsibility and Sustainability
Positioning the portfolio for future growth also extends to ensuring our centres are sustainably run and integral to their communities.
CQR incorporates a shared value approach, incorporating business, economic, social and environmental outcomes into our operations and developments. The shared value framework focuses on the themes of eco-innovation, place creation and wellbeing.
On the operational front, we continue to make improvements across our centres, with activity undertaken over the year now generating energy savings of more than 400 megawatt hours across the portfolio.
In NSW, we have container recycling facilities seeing more than 30 million drink containers recycled, and $3 million dollars refunded back to our shoppers over the last six months.
In addition to our Sustainability initiatives, we also aim to ensure our centres provide support to the communities they operate within, with 23 local community campaigns supported at CQR centres, delivering back to local community groups.
Over the last few years, a program to effect Board renewal of independent directors has been undertaken by the Responsible Entity of CQR.
In November 2015, Sue Palmer joined the Board followed by Mr Michael Gorman joining the Board in November 2016 and finally, Roger Davis, who joined in June this year. Mr Davis is also before investors today for election later in the meeting.
Today that process of renewal reaches its conclusion as I step-down and Mr Davis assumes the role of Chair, following the successful ratification of his appointment to the Board and the conclusion of this meeting.
These changes have been undertaken in a carefully managed process to ensure stability and minimal loss of corporate memory.
Your Directors are ever-mindful of their responsibilities as Independents to act in the interests of all unitholders and we endeavour to ensure CQR is the leading owner and manager of convenience-based retail.
It’s been my honour to have served you over the years as an Independent Director and Chair of CQR. Thank you for your trust and support over the years.
I will now hand over to Greg Chubb, CEO Retail and Executive Director to review the year’s financial and operating performance and to discuss the outlook for FY19.
Items of Business
We will now move to the formal business of the meeting and the resolution for your consideration.
The only item for consideration today is the election of director, Roger Davis of Charter Hall Retail Management Limited, the responsible entity of the fund, which will be decided by poll.
As explained in the Notice of Meeting, only the directors or shareholders of the company may appoint a Director. Accordingly, it is noted that that these resolutions are advisory only and are non- binding. Notwithstanding this, Directors will of course give due consideration to the results of the resolutions.
Before I open the poll, I would like to ask Roger to say a few words, detailing his background and experience for the benefit of unitholders in the room today.
Now I will briefly explain the procedure for voting on a poll.
I now declare the poll open and note that the resolution will be put to the meeting shortly and thereafter ask all Unitholders to cast their votes for or against the resolution by marking the box on their voting card for each resolution.
I will now put the resolutions as follows, with the respective proxy votes displayed on the screen:
“That Roger Davis, a director of CHRML be elected as a director of CHRML”.
If you can hand your forms to the Link representative who will take them to collate.
As there is no other business to be considered, I now declare the formal business of the meeting closed.
The results of the poll will be made available to the ASX and put up on our website as soon as Link has finished collating.
Close of Meeting
In closing today’s meeting I would like to acknowledge the loyalty that our investor partners, financiers, tenants and the community have shown us over 23 years, allowing the business to grow.
We are well placed to continue to deliver on our strategy to provide investors with a secure and growing income stream.
Thank you for your attendance.