Charter Hall Retail REIT HY11 Results

Charter Hall Retail REIT (ASX:CQR) (the ‘REIT’) today announced its half year results for the six months to 31 December 2010.

Key financial results:

• Operating earnings of $44.2 million, 14.52 cents per unit
• Distribution of $36.7 million, 12.00 cents per unit
• Portfolio value of $1,962 million
• Net tangible assets (NTA) at $1,075 million, $3.51 per unit

Portfolio operating performance:

• Core portfolio occupancy of 98.9%, with total portfolio occupancy of 97.2%
• Core portfolio same property net operating income (NOI) growth of 2.8%, with total portfolio growth of 2.2%
• Average anchor lease duration of 8.2 years

Commenting on the results, the REIT’s Chief Executive Officer, Steven Sewell, said:

“The REIT’s portfolio has performed well during the period with our core investments in Australia and Europe continuing to deliver solid results, reinforcing our strategy to reweight to Australia and maintain our European investment. The past six months has seen us deliver on a number of key initiatives in line with this strategy and we remain on track to complete the majority of non-core disposals by June 2011, forecast to release over $200¹ million of equity”.

Strong portfolio performance

The REIT’s total portfolio occupancy increased to 97.2% at 31 December 2010 from 96.7% at 30 June 2010, with same property NOI growth of 2.2%, following a continued focus on active asset management. As the REIT continues to execute its strategy of reweighting to Australia and finalises non-core disposals, the REIT’s portfolio metrics will improve in line with the performance of the core markets of Australia and Europe.

The Australian portfolio in particular performed well to 31 December 2010 with same property NOI growth of 3.2%, stable occupancy of 98.9% and a busy period of leasing activity with 44 renewals and 35 new lease transactions resulting in a rental rate growth of 7.2%.

In Europe, the portfolio continues to record strong performance with occupancy of 98.9% and same property NOI growth of 1.7%.

The value of the REIT’s core portfolio at 31 December 2010 decreased 0.2% over the adjusted June 2010 book value²  to $1.58 billion following external revaluations on 59% of the portfolio. The revaluations saw the core portfolio’s overall weighted average capitalisation rate soften from 7.89% to 8.13%, which was mostly offset by positive NOI growth of 2.6% for the period.

Increasing proportion of Australian NTA to 77%

As announced in August 2010, the REIT completed two individual United States asset sales during the period, realising A$12.3 million of net proceeds.

The REIT has also entered into conditional agreements for the sale of seven wholly owned United States assets and the sale of its 60% interest in the Desco/Regency joint venture which comprises a portfolio of 32 properties in the United States. When closed, the deals will eliminate a total of US$129.7 million of property-level debt and release approximately A$120.1 million of proceeds, significantly reducing the REIT’s gearing. Both disposals are anticipated to be completed by 30 June 2011, reducing the remaining United States portfolio to four wholly owned assets and a 75% interest in four assets held in joint venture with Regency Centers, which in total is forecast to represent only 1% of the REIT’s NTA.

The REIT has utilised its strong balance sheet position, surplus cash and undrawn facilities for reinvestment into higher value Australian assets, with the REIT acquiring four retail centres during the period for a total consideration of $131 million. This comprised a 50% interest in Lake Macquarie Fair and Mount Hutton Plaza shopping centre in NSW, a 50% interest in the household retail centre, Home HQ, Nunawading in Victoria and, most recently, the Gordon Shopping Centre and Arcade in Sydney, NSW.

Key capital management objectives achieved

The REIT continued to proactively refinance and extend the term of its debt facilities during the period, extending the term of the Australian multi-currency debt facility to September 2015 and receiving credit approval for the extension of its Polish debt facility to July 2014 (from its current December 2011 maturity). These transactions had the impact of extending the REIT’s weighted average debt maturity to 3.5 years as at 31 December 2010.

In January 2011, in recognition of its balance sheet strength, the REIT announced the intention to undertake an on-market buy-back for up to $20 million of units. The decision to proceed with a buy-back of the REIT’s units will take into account the REIT’s trading price at that time; alternative uses available for redeployment of the capital; and the contracted dates when equity will be received from the completion of the previously announced disposal transactions in the United States and New Zealand.

The REIT has cash and undrawn facilities of $110.1 million as at 31 December 2010 with balance sheet gearing forecast to be 32.9% post the completion of contracted disposals, well within the target gearing range of 30% to 40%.

Strategy and outlook

The REIT will continue to execute its strategy to reweight to Australia and sell down the majority of its non-core portfolio by 30 June 2011. The proceeds from the contracted disposals are expected to realise approximately $200 million of net proceeds further supporting the REIT’s strong balance sheet and liquidity position.

Mr Sewell said:

“We remain committed to positioning Charter Hall Retail REIT as the pre-eminent owner of neighbourhood and sub-regional retail assets in Australia. In line with our strategy to reweight to Australia, we remain focused on active asset management of our existing portfolio with the key objective of enhancing the returns on invested equity”.

Management has increased its forecast FY11 operating earnings range to 27.0 to 28.0 cents per unit³, with distributions to reflect an increased payout ratio range of between 85% and 95% of operating earnings. The current forecast FY11 operating earnings represent a yield of approximately 8% at the stated NTA per unit of $3.51.

Mr Sewell added:

“The imminent completion of the disposal of non-core assets will further enhance the REIT’s balance sheet strength and earnings quality, with the REIT well positioned for earnings growth in future financial years. This growth will be underpinned by a portfolio of predominantly Australian supermarket anchored shopping centres actively managed to optimise capital and income growth prospects”.

View CQR HY11 Results Presentation

View CQR HY11 Appendix 4D