Charter Hall Retail REIT March 2018 Quarterly Operational Update

Key Operational Highlights

The REIT has continued to deliver on its strategy with a focus on active asset management, enhancing portfolio quality and prudent capital management.

• Supermarket anchor tenant MAT continued to grow strongly at 4.2% for stores paying turnover rent and 3.2% for all stores, up from 2.9% at 30 December 2017.
• DDS tenant MAT has also grown strongly at 7.4% for stores paying turnover rent and 3.8% for all stores, up from 2.2% at 30 December 2017.
• Occupancy remained stable at 98% and like for like specialty sales growth of 0.8%, up from 0.3% at 30 December 2017.
• The REIT continued the unit buyback with $3.05 million of CQR units purchased over the period at an average price of $3.80.

Positive portfolio performance delivered by an active management approach

During the March-18 Quarter, the REIT’s $2.8 billion national portfolio of 63 convenience-based supermarket-anchored shopping centres delivered stable occupancy of 98%.

The focus of the portfolio continues to remain on convenience based non-discretionary retail uses driven by Australia’s leading major supermarket brands who have delivered a combined MAT growth of 3.2%, an increase from 2.9% on HY18 Results.

The REIT’s supermarket anchor tenants reported strong MAT growth of 4.2% for stores paying turnover rent with 53% of supermarkets in the portfolio now paying incremental turnover rent or having structured annual rent reviews.

Specialty shop sales like-for-like MAT growth for the quarter increased 0.8% compared to 0.3% at 30 December 2017. Combined specialty rent growth on new leases and renewals was 0.9% for the quarter, compared to 0.8% on 1H FY18 Results.

With a focus on convenience based non-discretionary retail uses the REIT’s tenant composition, has seen the portfolio achieve 93% of rental income from convenience based non-discretionary retailers with 76% of major tenant rental income generated by supermarkets.

Charter Halls Retail CEO, Greg Chubb, said:

“With a clear focus on convenience based non-discretionary retail uses, we have repositioned the portfolio for growth. Enhancing the in-centre experience, through strategic redevelopments and tenant curation is providing us a more resilient portfolio which is delivering like-for-like MAT growth across most retail sectors".

A disciplined investment strategy that is repositioning the portfolio for growth

The REIT has continued its disciplined investment strategy to enhance portfolio quality and earnings through strategic redevelopments, the divestment of lower growth assets, selective acquisitions of properties with potential for higher growth and share buybacks.

Mr Chubb said:

“We continue to transition the portfolio from non-core assets into larger convenience based non- discretionary centres where we can add value through active management. Our recent transactions, developments and prudent capital management initiatives demonstrate our ability to execute on this strategy to deliver unitholders a secure and stable income stream".

The REIT settled the sale of three lower growth assets for a total value of $63 million during the quarter. These assets included Moranbah and Springfield, Qld, and Goonellabah, NSW. In addition, the REIT has a total value of $32.2 million of assets which have exchanged and which are booked to settle prior to 30 June 2018, comprising; Renmark, SA and Smithton, Tas.

Mr Chubb added:

“Over the past 12 months the REIT has acquired two properties for a total consideration of $283 million at an initial yield of 6.00%. It has divested or contracted to sell 13 properties at a total consideration of $246 million at an average initial yield of 6.9%. Along with further asset sales, the REIT continues to be opportunistic in the market at this point of the cycle".

During the period, the $59 million major redevelopment of Lake Macquarie Fair, NSW commenced. The redeveloped centre will include a new, expanded Coles supermarket, improved customer amenity with the full integration of the Lake Macquarie Fair and Mount Hutton Plaza shopping centres.

The REIT also made significant progress on the $11¹ million redevelopment of Wanneroo Central, WA. The expansion of the centre will include a new full line ALDI supermarket, casual dining precinct and additional specialty retail space providing shoppers with a greater level of amenity and transforming the centre into an exciting retail precinct.

Proactive capital management focused on optimising unitholder returns

The REIT has also continued its capital management strategy to optimise unitholder returns, buying back

$3.05 million of units at $3.80 per unit during the quarter. This is in addition to the $1.8 million of units purchased in FY17 and $8.06 million of buyback activity occurring in the first half of FY18.

Outlook

Barring unforeseen events and the timing of the portfolio reconstruction, the REIT’s FY18 guidance for operating earnings is expected to be 30.40 to 30.60 cents per unit. The distribution payout ratio range is expected to remain between 90% and 95% of operating earnings.