Charter Hall Retail REIT HY12 Results

Charter Hall Retail REIT (ASX:CQR) (the ‘REIT’) today announced its results for the half year to 31 December 2011.

Key financial results:

• Statutory profit of $4.3 million, 1.44 cents per unit
• Operating earnings of $41.7 million, 13.92 cents per unit
• Distribution of $39.0 million, 13.00 cents per unit
• Balance sheet gearing of 39.1%, with balance sheet gearing of the Australian portfolio at 30.1%
• Portfolio value of $1,904 million
• NTA at $1,029 million, $3.43 per unit

Australian portfolio operating performance:

• Same property NOI growth of 3.5%
• Occupancy of 98.7%
• Sustained rental rate growth of 4.1% on 159 specialty leasing transactions
• WALE of Australian supermarkets and discount department stores of 11.2 years

Commenting on the results, the REIT’s Acting Chief Executive Officer, Scott Dundas, said:

“With a 16 year track record of owning and managing Australian retail properties, Charter Hall Retail REIT remains well positioned with our portfolio of predominantly non-discretionary supermarket anchored shopping centres, to continue delivering strong operational performance. During the past six months we have delivered on our strategic objective to build on the quality and strength of the Australian portfolio with the acquisition of three properties for a total of $90¹ million, all of which are anchored by a dominant Coles or Woolworths supermarket. Our Australian portfolio now represents 91% of net tangible assets (NTA) with balance sheet gearing of the Australian portfolio at 30.11%”.

Continued strong Australian portfolio performance

The REIT’s Australian portfolio continued to perform well during the year, highlighting the resilience of the non-discretionary retail sector. Occupancy remained strong at 98.7% at 31 December 2011, with same property net operating income (NOI) growth of 3.5%² and specialty rental rate growth of 4.1% following 82 new lease and 77 renewal transactions completed in the half year.

The REIT’s Australian specialty tenants delivered positive and increasing sales growth of 1.7% in a challenging retail environment. With sales productivity of over $8,100 per square metre, these tenancies have an occupancy cost of 8.2% compared to the national neighbourhood centre average of 11.7%³.

Equally anchor tenants, comprising mostly Coles and Woolworths supermarkets, have demonstrated resilience by delivering sales growth of 4.6%. Economic conditions in Poland remain relatively robust, with this portfolio maintaining solid occupancy of 97.6% and rental rate growth of 2.3% on 47 leasing transactions completed in the half year period. Conversely, operating conditions of the REIT’s German assets continue to be challenging with poor economic conditions across the Eurozone. The REIT’s two assets in this market have a short anchor weighted average lease expiry (WALE) of 2.6 years.

The REIT’s total portfolio occupancy increased to 97.9% at 31 December 2011, up from 97.5% at 30 June 2011. This was the result of continued implementation of the strategy to reweight the portfolio to the Australian market. Total portfolio WALE is steady at 6.6 years and same property NOI growth remains strong at 2.7%.

Australian focus

The REIT acquired three assets valued at $90 million, reflecting an initial yield of 8.9%, funded from offshore asset sales, surplus cash and undrawn debt facilities. These acquisitions have strong property fundamentals with combined occupancy of 97.4%, long term anchor WALE of 10.2 years and together are forecast to deliver a five year unlevered IRR of 10.8%.

The REIT continues to focus on value add opportunities within its Australian portfolio, with work recently commencing on the $55 million refurbishment of Gowrie Street Mall, Singleton NSW. A further five properties are earmarked for refurbishment following a high level of tenant commitment.

The majority of the remaining equity from the REIT’s United States properties was realised during the period with A$48.1 million repatriated from the individual sales of four wholly owned assets. A further three wholly owned assets are expected to be sold by June 2012.

Key capital management objectives achieved

The REIT continued to proactively refinance its debt facilities during the period, establishing a new $250 million A$CMBS facility to September 2015 via a new partnership with UniSuper, with a substantial reduction in margin. Other refinancings in the period include the extension of the Australian Multi-Currency debt facility to October 2016 with an increase in the facility limit to $335 million and the expansion of the Australian joint venture debt facility by $8.5 million, to partially fund the acquisition of Gladstone Shopping Centre.

These initiatives resulted in a weighted average debt maturity of 3.6 years as at 31 December 2011, and a forecast 2012 financial year debt cost of 6.4% per annum.

At 31 December 2011, the REIT had cash and undrawn facilities of $103.1 million, with balance sheet gearing at 39.1%, within the target gearing range of 30% to 40%.

Strategy and outlook

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

• Enhancing anchor WALE, occupancy and property income growth via the integrated property, asset and development management team structure;
• Enhancing IRR performance of the Australian portfolio, driven by proactive equity and debt management; and
• Completing the re-weighting to Australia by realising equity from offshore over the short to medium term, subject to market conditions.

Mr Dundas said:

“Resilience of non-discretionary retail spending continues to positively reinforce the REIT’s underlying strategy of being a specialist owner of supermarket anchored neighbourhood and sub-regional shopping centres in Australia".

Barring unforeseen events and on execution of strategy, forecast FY12 operating earnings are expected to be in the range of 28.75 to 29.25 cents per unit, with distributions to reflect a payout ratio of between 85% and 95% of operating earnings. This operating earnings forecast represents a yield of 8.5%4 at the stated NTA per unit of $3.43.

View CQR HY12 Results Presentation

View CQR HY12 Appendix

View CQR HY12 Webcast