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Charter Hall Retail REIT (ASX:CQR) (the REIT) today announced an operational update for the quarter ending 30 September 2017.
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.
Anchor tenant MAT continued to grow strongly at 4.0% for stores paying turnover rent and 2.7% for all stores
Occupancy remained stable at 98% with specialty sales growth consistent with the previous period
The REIT continued the unit buyback with $5 million of CQR units purchased over the period at an average price of $3.94
Consistent Portfolio Performance through Active Asset Management
The REIT’s Supermarketanchor tenants reported strong MAT growth of 4.0% for stores paying turnover rent with 55% of supermarkets in the portfolio now paying incremental turnover rent or having structured annual rent reviews.
The occupancy of the REIT’s portfolio remained stable at 98%. Combined specialty rent growth on new leases and renewals was 0.7% for the quarter, compared to 0.2% for FY17.
Specialty shop sales MAT growth for the quarter remains consistent with full year results. Other key specialty metrics such as occupancy cost and average sales also remain in line with full year results.
Enhancing Portfolio Quality
The REIT has continued its disciplined investment strategy to enhance portfolio earnings through value accretive redevelopments, selective acquisitions of properties with potential for higher growth, share buybacks and the divestment of lower growth assets.
During the quarter the REIT settled Highfields Village Shopping Centre in Queensland for $41.0 million on 3 July 2017 and Salamander Bay Shopping Centre in New South Wales for $174.5 million on 14 July 2017. Both assets were acquired at a yield of 6.0% and are located in high growth corridors and operate as the primary shopping centre in the respective locality. This takes the total volume of acquisition transactions over the last twelve months to $283 million.
In addition the REIT settled four, lower growth assets for a total value of $76 million during the quarter. This takes the total volume of divestment transactions completed over the last twelve months to $157 million at an average initial yield of 6.5%.
Further potential asset sales were announced during the period with the REIT contracting to divest Moranbah Fair Shopping Centre in Moranbah, Queensland for $25 million with settlement to occur in December 2017. In addition the REIT sold a standalone Woolworths in Kerang, Victoria at auction for $15.7million (book value $14.55 million) on 26 October 2017, reflecting a 6.00% yield. Settlement is to occur late November 2017. These divestments were factored into the FY18 earnings guidance of 30.2 to 30.6 cents per unit.
The REIT has appointed Colliers International and Stonebridge Property Group to market the Gordon Centre (including the Gordon Village and adjoining assets) for sale. The decision to appoint agents follows unsolicited enquiries to purchase the centre that indicated a realisable value significantly in excess of current book value reflecting the re-development potential of the site.
The potential future sale of this asset is in addition to assets already identified for sale as part of the FY17 financial results. Existing FY18 guidance does not include the financial impact of the sale of this Centre.
CQR Fund Manager Scott Dundas commented:
“Management remain committed to driving the future earnings growth of CQR for the benefit of all unitholders. In the event that the asset is sold, proceeds of the sale will be directed towards repaying debt and on-going capital management activities, including the further buyback of CQR securities. Our existing FY18 guidance remains unchanged pending the outcome of this sales campaign".
The REIT has also continued its capital management strategy to optimise shareholder returns, buying back $5 million of units at $3.94 per unit during the quarter. This is in addition to the $1.8 million of units purchased in 2H FY17 with buyback activity continuing in the second quarter of FY18.
Barring unforeseen events and the timing of the portfolio reconstruction, the REIT’s FY18 guidance for operating earnings is expected to be 30.2 to 30.6 cents per unit. The distribution payout ratio range is expected to remain between 90% and 95% of operating earnings.
Mr Dundas added:
“We continue to transition the portfolio from non-core assets into larger centres where we can add value through active management. Our recent transactions and prudent capital management initiatives demonstrate our ability to execute on this strategy to deliver unitholders a secure and growing income stream".