Charter Hall Retail REIT FY10 Results

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by Charter Hall Announcements

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Charter Hall Retail REIT (ASX: CQR) (the “REIT”) today announced its results for the 12 months to 30 June 2010.


Key results:

  • Operating earnings of $98.7 million, 6.62 cents per unit
  • Distribution of $79.3 million, 5.30 cents per unit
  • Portfolio value of $2,055 million
  • Net tangible assets (NTA) at $1,110 million, 74 cents per unit


Key portfolio results:

  • Occupancy of 96.7%
  • Same property net operating income (NOI) growth of 1.2%
  • Average anchor lease duration of 8.7 years


Charter Hall Retail REIT’s Chief Executive Officer, Mr Steven Sewell said:


“After making significant progress on our strategy to re-weight back to Australia, with the domestic portfolio now representing 72% of the REIT’s NTA as at 30 June 2010, we remain well positioned with a strong balance sheet.”


Integration into Charter Hall

In March this year, Charter Hall Group (ASX: CHC) acquired the majority of Macquarie Group Limited’s Australian real estate funds management platform, including Charter Hall Retail Management Limited (formerly Macquarie CountryWide Management Limited). It also became the largest investor in Charter Hall Retail REIT (formerly Macquarie CountryWide Trust), by acquiring 7.5% of the units, strongly aligning interests with unitholders.

The smooth integration into the specialist property fund manager, Charter Hall Group, has provided the REIT with access to the Group’s centralised in-house property services team creating enhanced value both at the property and corporate level and providing support with the continued implementation of the REIT’s investment strategy to increase its Australian portfolio’s asset base.


Portfolio performance update

Charter Hall Retail REIT’s portfolio operating metrics for the year saw portfolio occupancy increase to 96.7% at 30 June 2010 from 95.3% at 30 June 2009, with a weighted average lease expiry of 6.0 years.

Leasing activity across the entire portfolio was robust with a total of 287 leasing transactions undertaken. Average rental rates globally on new leases and renewals were flat, with an 8.4% decrease in rents in the United States offset by an increase of 5.2%, resulting from 145 deals, in Australia and 1.9% in Europe.

In particular, the Australian portfolio performed strongly generating 4.7% same property NOI growth and increasing occupancy to 99.1%. The portfolio’s greater exposure to neighbourhood and sub-regional centres and strong supermarket anchor sales growth helped to drive income growth across the portfolio.

In the United States, the real estate market continues to face difficult economic conditions, however the portfolio performed in line with expectations. Occupancy decreased to 92.7% at 30 June 2010 from 94.3% at 30 June 2009 and same property NOI decreased by 4.9%, impacted by reducing rental rates on new leases and renewals.

In Europe, the seven-property portfolio continues to record solid performance with occupancy at 98.7% and same property NOI growth of 0.4%.

The portfolio was revalued at year end resulting in a 1.1% increase in portfolio value over the June 2010 book value to $2.1 billion. Revaluations were undertaken on all properties in the portfolio, with128 of the total number of properties externally revalued over the last 12 months and 74  properties, or 39% of the portfolio by value, externally revalued over the last six months to 30 June 2010.


Portfolio Investments

During the year the REIT completed the sale of a $1.6 billion United States portfolio, announced in July last year, eliminating $1.38 billion of scheduled US$CMBS maturities and significantly reducing the REIT’s gearing.

Post 30 June 2010, the REIT has contracted to sell a further two assets from its United States portfolio for a gross sale price of US$23.7 million (A$26.0 million).

Utilising undrawn debt facilities, the REIT acquired four retail properties in Australia for a total consideration of $102.8 million. The properties purchased comprise a household retail centre in Mile End Adelaide, SA; a Coles supermarket anchored shopping centre in Manuka, ACT; and, post balance date, a 50% interest in two supermarket anchored shopping centres at Lake Macquarie, NSW.


Capital management update

The REIT achieved a number of key objectives during the year, including the successful issue of a AAA rated $265 million CMBS program in September 2009.

The REIT also extended its Polish debt facility to December 2011, with a loan to valuation (LTV) covenant waiver until June 2011, and extended its German property-level loan facility to July 2012 eliminating the LTV covenant entirely. The REIT is in advanced discussions with its lenders on further extensions to both facilities.

As at 30 June 2010, the REIT’s balance sheet gearing stood at 38.3%, within the target gearing range of 30% to 40%. The REIT has cash and undrawn capacity of $128 million as at year end and is undertaking proactive debt refinancing in Australia and in Europe.


Strategy and Outlook

The REIT has a strong balance sheet and liquidity position and is well placed to execute on its strategy to sell down its 50% interest in the 17 property joint venture in New Zealand and to sell the remainder of its assets and joint venture interests in the United States. Further, it will seek to recycle approximately $70 million of capital from the disposal of eleven non-core assets in Australia.

The proceeds from these transactions will be utilised to fund investment opportunities in the domestic market, to either acquire assets or enhance existing assets via redevelopment, with the objective of providing higher and more sustainable capital and income growth. Management is targeting completion of the asset sales by June 2011 with progressive reinvestment into Australia as redevelopment and acquisition opportunities arise.

The REIT intends to maintain its interest in the European portfolio over the medium term to capture an above average return on its relatively low equity investment.


Mr Sewell commented:


“With property fundamentals positive in our asset class, we believe the best opportunity for sustainable income and capital growth for investors exists in the Australian retail property market. The equity realised from the REIT’s exit of the United States and New Zealand markets and sale of selective non-core Australian properties will be opportunistically reinvested to redevelop and upgrade selected assets within the existing portfolio and purchase additional assets in Australia. We are committed to growing the NTA per unit of the REIT and optimising the portfolio’s internal rate of return”.


On execution of this strategy and, barring unforeseen events, management forecast FY11 operating earnings to be in a range of 5.3 to 5.6 cents per unit (26.5 to 28.0 cents per unit post consolidation) and distributions to reflect a payout ratio of between 80% and 90%.


View CQR FY10 Results Presentation

View CQR FY10 Appendix 3B