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Charter Hall Retail REIT (ASX:CQR) (the REIT) today announced its results for the half year to 31 December 2015.
Key financial results:
Portfolio operating performance:
Scott Dundas, Fund Manager of the REIT, said:
“Today’s positive performance and result reflects our disciplined use of capital and a continued focus on portfolio enhancement during the first half of the financial year. We continued to actively manage our portfolio focusing on strong tenant relationships, optimising tenancy mix and prudent capital management as we recycled out of non-core properties into larger assets with forecast higher growth characteristics".
Mr Dundas added:
“We are pleased to have continued to deliver a secure and growing income stream for our investors, reporting operating earnings of 15.18 cents per unit, a distribution of 14.0 cents per unit, up 2.2% on pcp, and stable performance across our portfolio including same property NOI growth of 2.4%".
Positive portfolio performance delivered by an active management approach
The REIT’s $2.5 billion national portfolio of 76 supermarket anchored shopping centres delivered stable occupancy of 98.4% and same property NOI growth of 2.4%. With a firm focus on strong tenant relationships and optimising tenancy mix the REIT achieved specialty rent growth of 1.4% with 90 new leases and 61 renewals completed in the period and a retention rate for specialty tenants of 86%.
Specialty MAT growth increased to 3.5% for the period, reflecting the improved performance of national specialty tenants who represent 59% of the REIT’s specialty portfolio. Anchor MAT growth has stabilised at 1.2% for stores in turnover, following the recent challenges for the Woolworths supermarket business.
Property valuations increased by $59.5 million or 2.5% over the six month period, with the weighted average capitalisation rate firming by 26 basis points to 6.89%, demonstrating continued strong investor interest in the asset class.
A disciplined investment strategy that is enhancing the portfolio quality
The REIT has continued its disciplined investment strategy to enhance the portfolio quality through value enhancing redevelopments, selective acquisitions of forecast higher growth properties and noncore asset disposals.
During the period the REIT contracted to sell two non-core properties valued at $20.3 million at an average yield of 6.5%. The two West Australian centres in Ballajura (sold February 2016) and Collie (forecast to settle in March 2016) have been sold at a combined 4.7% premium to the June 2015 book value.
The REIT selectively acquired four supermarket anchored shopping centres for a total purchase price of $227.8 million at an average initial yield of 7.0%. The four new centres, Brickworks Marketplace, SA, Goulburn Plaza, NSW, Katherine Central, NT and Bateau Bay Square, NSW, are located in either high growth corridors or operate as the primary shopping centre in the region and are in line with the REIT’s investment criteria.
Value enhancing redevelopments remain a key element of the REIT’s growth strategy, with two projects with a total value of $106.8 million announced and forecast for completion in 2017. This includes the major redevelopment of the Secret Harbour Shopping Centre in Perth, Western Australia, which will comprise a major refurbishment of the existing centre, the expansion of the existing Woolworths store, a new 4,050sqm Coles supermarket and a new 1,225sqm Dan Murphy’s, and an array of specialty retailers including an improved food and beverage offering.
Mr Dundas said:
“The $59 million investment to revitalise Secret Harbour Shopping Centre continues the REIT’s focus on delivering value to our centres, communities and unitholders and follows completion of major redevelopments at Caboolture Square, Queensland and Lansell Square, Victoria in 2015. Value enhancing redevelopment is a key element of our growth strategy to ensure we provide an enjoyable and convenient shopping experience and deliver a secure income stream for our investors".
Following acquisitions, disposal of non-core assets and completed redevelopments the REIT’s average asset value has increased from $32.7 million at June 2015 to $37.6 million at December 2015.
Proactive capital management focused on a strong and flexible balance sheet
Following the completion of the restructure of the REIT’s debt platform in July 2015 the focus has continued on diversifying and extending the REIT’s debt profile. The bank debt expiry in January 2017 represented the next opportunity to further implement this strategy and the following initiatives have been completed:
These prudent capital initiatives have increased the REIT’s weighted average debt maturity from 5.8 years to 6.7 years and provided increased liquidity enabling the REIT to capitalise on acquisition and redevelopment opportunities.
Strategy and FY16 operating earnings guidance
The REIT’s performance is underpinned by a focus on three key areas:
Barring unforeseen events, the REIT’s FY16 guidance for operating earnings is unchanged at between 30.25 and 30.75 cents per unit.
Distribution payout ratio range is expected to remain between 90% and 95%.
Mr Dundas said:
“With a geographically diverse non-discretionary retail focus and anchor tenant income generated equally from Wesfarmers and Woolworths owned retailers, the REIT is well positioned. With a continued focus on the active management of our portfolio through strong tenant relationships, enhancement of portfolio quality and prudent capital management, we will continue to deliver a secure and growing income stream for investors".