Charter Hall Retail REIT HY18 Results

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Charter Hall Retail REIT (ASX:CQR) (CQR or the REIT) today announced its results for the half year to 31 December 2017.

Key financial results:

• Operating earnings of $61.9 million or 15.30 cents per unit, an increase of 0.6% on the prior corresponding period (pcp)
• Distributions of 14.00 cents per unit, maintaining a sustainable payout ratio range between 90% to 95%
• Net tangible assets (NTA) up 1.5% to $4.19 per unit
• Pro-forma balance sheet gearing of 33.9% post asset sales remains in the middle of the 30-40% range
• Portfolio value of $2.9 billion, up 5.2% from $2.8 billion at June 2017
• Repaid and cancelled $50 million debt facility. No debt maturing until FY21

Operating highlights:

• Acquired Salamander Bay, NSW and Highfields, QLD for $215.5 million at a yield of 6.0%.
• Divested 11 lower growth properties for $229.8 million¹ at an average yield of 6.9%
• Commenced $70 million² of redevelopment works at Lake Macquarie, NSW and Wanneroo, WA
• Like-for-like net property income (NPI) growth of 1.3% pcp
• Majors MAT growth of 4.1% for stores in turnover
• Portfolio MAT growth of 2.3%
• Completed 118 lease renewals and 74 new leases reflecting continued focus on specialty leasing
• Stable occupancy at 97.8%.
• Majors WALE of 10.8 years and portfolio WALE of 6.7 years

Charter Hall’s Retail CEO, Greg Chubb said:

“We have repositioned the portfolio for growth a process that began 18 months ago. The focus of the portfolio continues to remain on convenience based nondiscretionary retail uses driven by Australia’s leading major supermarket brands who have delivered a combined MAT growth of 2.9%.”

Positive portfolio performance delivered by an active management approach

The REIT’s $2.9 billion national portfolio of 66 convenience based supermarket-anchored shopping centres delivered stable occupancy of 97.8% and like-for-like NPI growth of 1.3%. Property values on a like-for-like basis increased by $42 million representing 1.5% growth over the whole portfolio and an average asset value of $50.1 million.

Mr Chubb added:

“Our strategy of recycling capital into potential higher growth assets to build a more resilient convenience based non-discretionary retail portfolio has enhanced the quality of the REIT’s portfolio and increased the average asset value from $44.7 million as at 30 June 2017 to $50.1 million as at 31 December 2017".

The REIT’s supermarkets continued to perform well with 51% of supermarket tenants now paying turnover rent with a further 19% within 10% of their turnover thresholds. Supermarket MAT growth for stores paying turnover rent was 3.8% for the period.

The REIT’s tenant composition, has seen the portfolio achieve 93% of rental income from convenience based non-discretionary retailers with 76% of major tenant rental income generated by supermarkets. ALDI continues to expand across the portfolio and has become the 7th largest tenant, with further additional stores to be added to the portfolio, providing shoppers with greater convenience and choice.

With a firm focus on strong tenant relationships and creating convenient shopping experiences through enhanced tenant optimisation, the REIT had an active leasing period with 74 new leases and 118 lease renewals, with a strong focus on food-based and non-discretionary tenants.

A disciplined investment strategy that is delivering a convenient shopping experience

The REIT has delivered on its disciplined investment strategy to enhance portfolio earnings through value accretive redevelopments, selective acquisitions of properties with potential for higher growth and buyback of units.

During the period, the REIT contracted to divest 11 lower growth properties valued at $229.8 million (CQR share) at an average yield of 6.9%.

The REIT recycled capital into the acquisition of Salamander Bay Shopping Centre, NSW for $174.5 million and the Highfields Village Shopping Centre, QLD, for $41.0 million. Both assets were acquired at a yield of 6.0%, are located in growth corridors, and operate as the primary convenience centre in their respective locality.

During the period, the major redevelopment of Lake Macquarie, NSW commenced. The redeveloped centre will include a new, expanded Coles Supermarket, improved customer amenity with the full integration of the Lake Macquarie Fair and Mount Hutton Plaza shopping centres.

The REIT also commenced the redevelopment of Wanneroo Central, WA. The expansion of the centre will include a new full line ALDI supermarket, casual dining precinct and additional specialty retail space providing shoppers with a greater level of amenity and transforming the centre into an exciting retail precinct.

Proactive capital management focused on a strong and flexible balance sheet

The REIT has continued to focus on diversifying and extending the REIT’s debt profile and the following initiatives have been completed with no debt maturing until FY21:

• Repayment and cancelled $50 million debt facility maturing in July 2018
• RP2 Joint Venture bank debt facility upsized and extended to FY22

These prudent capital initiatives have maintained the REIT’s weighted average debt maturity at 5.6 years, with an average hedge maturity of 3.8 years. CQR’s pro-forma balance sheet gearing remains in the middle of the target 30-40% range at 33.9%, with cash and undrawn debt capacity of $84 million.

Strategy and FY18 operating earnings guidance

The REIT’s performance is underpinned by a focus on four key areas:

• Convenience based non-discretionary supermarket anchored retail and enhancing the overall shopper experience
• Active asset management, maintaining strong tenant relationships and optimising tenancy mix through proactive leasing
• Enhancing the portfolio quality, through value accretive redevelopments and portfolio curation
• Prudent capital management, with a focus on a strong and flexible balance sheet complemented with a sustainable payout ratio

Barring any unforeseen changes to operating conditions, and following the completion of asset sales and acquisitions, FY18 earnings guidance is expected to be 30.40 to 30.60 cents per unit. The distribution payout ratio range is expected to remain between 90% and 95%.

View CQR HY18 Results Presentation

View CQR HY18 Appendix D

View CQR HY18 Webcast

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¹ _{Including exchanged but not settled.}

² _{CQR share.}