Charter Hall Reveals Strong Half Year Results

Charter Hall Retail REIT (ASX:CQR) (the REIT) announced its results yesterday for the half year to 31 December 2016.

The REIT’s $2.7 billion national portfolio of 72 supermarket anchored shopping centres delivered stable occupancy of 98.0% 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 1.2% with 117 new leases and 64 renewals completed in the period and a retention rate for specialty tenants of 84%.

Specialty MAT growth was 1.6% for the period, reflecting challenging trading conditions for specialty retailers. Anchor MAT growth has increased to 2.8% for stores in turnover.

Property valuations increased by $96.8 million or 3.7% over the six month period, with the weighted average capitalisation rate firming by 31 basis points to 6.40%, demonstrating continued strong investor interest in the asset class.

The REIT's results reflected a disciplined investment strategy which appeared to enhance their portfolio quality through value enhancing redevelopments, selective acquisitions of larger properties with potential higher growth and disposal of smaller non-core assets.

During the period, the REIT contracted to sell three non-core properties valued at $72.2 million (100% share) at an average yield of 5.6%. The two assets in Victoria and one asset in Queensland have been sold at a combined 10.4% premium to the June 2016 book value.

The REIT selectively acquired one supermarket anchored shopping centre for a purchase price of $67.1 million at a fully leased yield of 6.00%. The new centre, Arana Hills Plaza, Qld. is located in a high growth corridor and operates as the primary shopping centre in the region and is 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 $114 million announced and forecast for completion in 2017 and 2018. 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 supermarket, a new 4,050sqm Coles supermarket, a 1,500sqm Aldi supermarket and a new 1,225sqm Dan Murphy’s, and an array of specialty retailers including an improved food and beverage offering.

“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 a major redevelopment at Lansell Square, Victoria in 2015," REIT Fund Manager Scott Dundas said.

“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,” Mr Dundas said.

Following acquisitions, disposal of non-core assets, revaluations and completed redevelopments the REIT’s average asset value has increased from $39.7 million at June 2016 to $43.3 million at December 2016.
Key financial results

• Statutory profit of $178.9 million, a 71.4% increase from prior corresponding period (pcp)

• Operating earnings of $61.7 million, 15.21 cents per unit, a 0.2% increase from pcp

• Distributions of 14.1 cents per unit, up 0.7% from pcp

• Balance sheet gearing of 32.1% remains towards the lower end of the range

• Look through gearing of 35.3% remains in the middle of target range

• Portfolio value of $2.7 billion, up 6.5% from $2.5 billion at June 2016

• Net tangible assets (NTA) up 8.2% from June 2016 to $4.10 per unit

• Weighted average debt maturity of 6.0 years

• Cash and undrawn debt capacity of $128 million

• Same property net operating income (NOI) growth of 2.4%

• Specialty rent growth of 1.2% achieved from 64 renewals and 117

  new leasing transactions

• Occupancy maintained at 98.0%

• Weighted average anchor lease duration of 10.7 years.