Charter Hall Long WALE REIT – Acquisition of 50% of ALE Property Group

Charter Hall Long WALE REIT (ASX:CLW) is pleased to announce that CLW and a Charter Hall managed trust on behalf of Host-Plus Pty Limited¹ (Hostplus), (together the Consortium) have entered into a Scheme Implementation Deed (SID) with ALE Property Group (LEP) to acquire all of the LEP Stapled Securities² via schemes of arrangement, subject to certain conditions (the Transaction).

In addition, CLW has also acquired two industrial properties in Sydney and Brisbane with WALEs of 16.8 years and 7.9 years respectively, for a total purchase price of approximately $67 million (together, the Acquisitions). Further detail on the Acquisitions is included in Appendix 2 of this announcement.

Including the impact of the Transaction and Acquisitions, and based on information currently available and barring any unforeseen events, CLW reconfirms its forecast FY22 operating earnings per security (OEPS) guidance of no less than 4.5% growth over FY21 OEPS.

Transaction overview

CLW has today announced that it has entered into a SID with LEP under which the Consortium will acquire all of the LEP Stapled Securities via schemes of arrangement, subject to certain conditions. CLW is undertaking the Transaction alongside Hostplus, its existing capital partner in the Long WALE Investment Partnership (LWIP) and each Consortium member will own 50% of LEP’s assets post Transaction.

Under the Transaction terms, LEP Securityholders will receive $5.68³ per LEP security (Consideration) comprising:

• $3.673 cash per LEP security (of which CLW will fund $0.833 per LEP security); and
• 0.408 CLW securities per LEP security.

LEP securityholders will also receive the LEP September 2021 quarter distribution of $0.055 per LEP security. The total cash consideration paid will be reduced by any further LEP distributions made prior to the implementation date (other than the September 2021 quarter distribution of $0.055 per LEP security). If the Transaction proceeds and completes prior to the CLW distribution record date on 31 December 2021, LEP Securityholders are expected to be entitled to receive the CLW distribution for the three months ending 31 December 2021. Total enterprise value consideration (including transaction costs) will be approximately $1.68 billion (100% basis).

The current implied value of the Consideration under the Transaction of $5.88⁴ represents a:

• 25.2% premium to LEP’s last close price of $4.70 on 17 September 2021;
• 23.1% premium to LEP’s 1 month VWAP of $4.78 on 17 September 2021; and
• 22.8% premium to LEP’s 3 month VWAP of $4.79 on 17 September 2021.

The LEP Board has unanimously recommended LEP Securityholders vote in favour of the Transaction, in the absence of a superior proposal and subject to an Independent Expert concluding that the Transaction is in the best interests of LEP Securityholders.

Transaction benefits and rationale

The Transaction is designed to provide LEP Securityholders with an attractive premium for their securities and on-going participation in the benefits associated with an investment in CLW.

The Transaction also represents an opportunity for CLW Securityholders to acquire a large scale, materially under-rented portfolio of high quality hospitality assets.

1. Highly strategic and well-located properties

• 99% of properties are located in metropolitan locations⁵
• 94% of properties are located on Australia’s East Coast⁵
• Portfolio occupies approximately 915,000 m² of land in prime locations across Australian capitals and major cities with low site coverage of 25%
• Potential mixed and alternate use opportunities in the long term with strong embedded land value

2. High quality tenant counterparty

• National portfolio of 78 high quality pubs leased to Endeavour Group, Australia’s largest pub operator and liquor retailer via Dan Murphy’s and BWS stores
• Increases CLW’s exposure to Endeavour Group as a tenant, which has a current market capitalisation of approximately $12 billion
• Highly resilient tenant customer, with 100% of rent received during COVID

3. Attractive lease structure

• 95% of leases are triple net⁶
• WALE of 7.5 years, with 4 x 10 year options with annual CPIF increases and market reviews at exercise of each option
•  High renewal probability given strategic importance to Endeavour Group, with properties operating as pubs for an average of 60+ years

4. Strong rental growth

• Annual rental escalation linked to CPI (predominantly uncapped)
• Current passing rent is considered by independent valuers appointed by LEP to be 37% below market rent levels
• Open market rent review for 95% of LEP portfolio (majority November 2028)⁶

Avi Anger, Fund Manager of CLW commented: “We believe the Transaction is attractive and designed to deliver significant benefits to both LEP and CLW Securityholders. The Transaction is consistent with CLW’s strategy to invest in high quality real estate assets that are predominantly leased to corporate and government tenants on long term leases. We are pleased to be able to continue our partnership with Hostplus, a leading Australian Superannuation Fund, in investing in high quality pubs and liquor retail outlets leased to Endeavour Group.”

Impact on CLW’s portfolio

Post Transaction, CLW will continue to be Australia’s largest and most diversified long WALE REIT with an estimated pro forma market capitalisation of approximately $3.8 billion⁷. Key metrics of CLW’s portfolio include:

Key details of the Transaction

The Transaction is to be implemented via LEP schemes of arrangement, which will require LEP Securityholder approval. CLW stapled securities issued to LEP Securityholders as part of the Transaction will rank equally with existing CLW stapled securities.

The Transaction is conditional upon a number of matters set out in the SID, including LEP Securityholder approval of the schemes of arrangement (75% of votes cast and 50% of Securityholders voting), and other customary conditions.¹¹

A full copy of the SID is attached to this announcement.

The Consortium has engaged Morgan Stanley Australia Limited and Ord Minnett Limited as its financial advisors and Arnold Bloch Leibler as its legal advisor in relation to the Transaction.

Indicative implementation timetable

All dates and times are indicative only and subject to change. Unless otherwise specified, all times and dates refer to Sydney time.

Further information

Further details of the Transaction are provided in a presentation that has also been released to the ASX today.

Attachments

• Appendix 1: Acquisition of 50% of ALE Property Group Presentation
• Appendix 2: Industrial Property Acquisitions
• Appendix 3: Scheme Implementation Deed

Announcement authorised by the Board

Click here to view ASX announcement

1. ^{Host-Plus Pty Limited ABN 79 008 634 704 AFSL 244392 as trustee for the Hostplus Pooled Superannuation Trust (PST) ABN 13 140 019 340}
2. ^{The Consortium will acquire all of the units in Australian Leisure and Entertainment Property Trust (ALE Trust) and Charter Hall Holdings will acquire all of the shares in Australian Leisure and Entertainment Property Management Limited (ALE Responsible Entity).}
3. ^{Based on CLW’s closing security price of $4.92 on 30 July 2021, being the date of the Non-Binding Indicative Offer (NBIO). The Consideration reflects an NBIO price of $5.70 per LEP security plus the excess above book value achieved on the sale of Tudor Inn Victoria and Royal Exchange Hotel Queensland, that will settle prior to completion of the Transaction, less the LEP September 2021 quarter distribution of $0.055 per LEP security.}
4. ^{Based on CLW’s closing security price of $5.28 on 17 September 2021 and including the LEP September 2021 quarter distribution of $0.055 per LEP security.}
5. ^{Weighted by value}
6. ^{Weighted by income}
7. ^{Based on CLW’s closing security price of $5.28 on 17 September 2021}
8. ^{As at 30 June 2021, adjusted to include acquisitions post 30 June 2021 that have settled or are expected to settle prior to completion of the Transaction}
9. ^{Post Transaction based on CLW’s 50% share of total enterprise value consideration}
10. ^{CPI is assumed at 2.6% on average over the forecast period}
11. ^{Customary conditions are set out in the SID and include: receipt of customary ASIC relief and ASX waivers and confirmations, receipt of court approvals, an independent expert declaring the Transaction is in the best interests of LEP Securityholders and no Prescribed Occurrence per the SID}