Charter Hall Retail REIT FY13 Results

Charter Hall Retail REIT (ASX:CQR) (the ‘REIT’) today announced its results for the full year to 30 June 2013.

Key financial results:

• Statutory profit of $52.6 million, 16.24cpu
• Operating earnings¹ of $96.4 million, 29.77cpu; up 3.3% on pcp
• Distribution of $90.0 million, 26.80cpu
• REIT balance sheet gearing of 33.4%²
• Australian balance sheet gearing of 29.7%²
• Australian portfolio value of $1,657.6 million
• NTA at $1,121 million or $3.32 per unit
• Cash and undrawn debt capacity of $188 million³

Australian portfolio operating performance:

• Same property NOI growth of 2.8%
• Occupancy of 98.2%
• Specialty rental rate growth of 3.1% from 326 leasing transactions

Scott Dundas, the REIT’s Fund Manager said:

“We are pleased to have delivered a result in line with guidance and strategy for our investors. Throughout the year we have grown our Australian supermarket anchored portfolio with the acquisition of four properties, one post balance date, and have made significant progress on our redevelopment pipeline. Our reweighting to Australia is almost complete, with the last remaining US joint venture portfolio sold during the year and the Polish portfolio contracted for sale and due to complete next month”.

Australian portfolio growth and reinvestment continue

The REIT has remained focused on building its Australian portfolio, acquiring three supermarket anchored shopping centres - Tamworth City Plaza, Dubbo Square and the remaining 50% interest in Lake Macquarie Fair and Mount Hutton Plaza – for $101 million during the year, reflecting an average initial yield of 9.6%. All properties are anchored by a high turnover Coles or Woolworths supermarket.

Post balance date, the REIT has also acquired the $33.2 million Secret Harbour shopping centre and adjoining development land, located in a high population growth area south of Perth. Management continue to look for further acquisition opportunities in line with the REIT’s investment criteria.

The REIT also continues to focus on redevelopment opportunities to enhance its portfolio. The flagship $62 million Singleton Square redevelopment officially launches today with the opening of an additional 10,000 square metres of retail space comprising a new Coles supermarket and speciality stores. A further three Board approved redevelopments, with a total value of $51 million and an average development yield of 10.2%, will be either complete or significantly progressed in FY14.

This growth has been partially funded by the successful $119 million institutional placement and unit purchase plan, undertaken in October 2012, as well as the sale of two non-core Homemaker Centres at Mile End in Adelaide and Nunawading in Melbourne.

Consistent Australian portfolio performance

The REIT’s Australian portfolio continued to deliver solid earnings, with occupancy of 98.2% and same property net operating income (NOI) growth of 2.8%. Active management of the portfolio remained a focus, with the leasing team completing 139 lease renewals and 187 new lease commitments across the portfolio, delivering specialty rental rate growth of 3.1%. Woolworths and Wesfarmers anchor tenant leases continue to provide 54% of Australian annual base rent with an average unexpired lease term of 10.7 years.

Improving the REIT’s earnings quality and balance sheet position

The REIT has made significant progress on the reweighting of its portfolio to Australia, with the sale of its last US joint venture for US$49 million and the Polish portfolio contracted for sale at €174.5 million, which is due to complete in September 2013. The REIT also sold its two non-core household retail assets for a combined value of $67.8 million, one post balance date, strengthening the quality of its Australian portfolio. Following completion of the Polish sale the Australian portfolio will represent 97% of the REIT’s net tangible assets.

The REIT has refinanced its multi-currency debt facility with a new syndicated debt facility and extended the term to August 2018⁴, increasing its Australian weighted average debt maturity to 3.9 years. This refinance also increased the facility limit to $425 million, reduced the margin and introduced a new banking partner at the head trust to facilitate future growth for the REIT.

These sales and capital management initiatives have improved the REIT’s quality of earnings, with the REIT’s balance sheet reducing to 33.4% whilst the Australian portfolio has balance sheet gearing of 29.7%.

The REIT maintained its Distribution Reinvestment Plan for the June 2013 distribution, with participation up 6% to 35% and the proceeds being applied to the REIT’s redevelopment pipeline.

Strategy and outlook

Management remains focused on maintaining and enhancing the REIT’s Australian portfolio through a continued focus on:

• Non-discretionary retail spending
• Enhancing property returns through leveraging Charter Hall’s vertically integrated management platform
• Proactive equity and debt management
• Acquiring high quality Australian supermarket anchored retail properties and enhancing the existing portfolio through redevelopments
• Completing the re-weighting to Australia.
  

Mr Dundas said:

“The REIT is well positioned, with the majority of its portfolio consisting of high quality Australian neighbourhood and sub-regional shopping centres, and combined with active management is expected to continue to deliver a secure and growing income stream for investors".

FY14 operating earnings guidance

From 1 July 2013, the REIT’s German operations will no longer be included in the REIT’s operating earnings. These properties are being prepared for sale and earnings from these operations are not available for distribution. However, the higher quality earnings of the Australian portfolio justifies the narrowing of the REIT’s payout ratio range.

Barring unforeseen events the REIT’s FY14 guidance for operating earnings, excluding German Operations⁵, is between 29.5 and 30.0 cents per unit. The payout ratio range is expected to be between 90% and 95% of operating earnings excluding German operations.

View CQR FY13 Results Presentation

View CQR FY13 Appendix 4E

View CQR FY13 Webcast