Charter Hall Retail REIT (CQR) has released its FY23 results for the period ended 30 June 2023 with operating earnings of $166.9 million, up 1.5% on prior corresponding period and statutory profit of $37.8 million.
The CQR portfolio continues to be strategically weighted towards high quality major convenience retail tenants. Major tenants Woolworths, Coles, bp, Wesfarmers, ALDI, Ampol, Endeavour and Gull represent 57% of rental income.
Supermarkets in the convenience retail portfolio continued to perform well with 67% of supermarket tenants paying turnover rent, up from 62% in June 2022 and those within 10% of turnover thresholds representing 18% of supermarkets. Supermarkets across the portfolio delivered 4.3% MAT growth.
CQR also had an active period of leasing with 420 specialty leases completed at an average spread of +2.5%. This was made up of 161 new specialty leases completed at an average +1.7% leasing spread and 259 renewals completed at an average +2.7% leasing spread.
Specialty productivity continues to improve and reached a portfolio record at $10,489/m2. Occupancy costs have fallen slightly and are highly sustainable at 11.4%.
Charter Hall Retail’s CEO, Ben Ellis said: “CQR’s blend of Long WALE and convenience retail assets continues to produce meaningful income growth for investors. FY23 saw CQR deliver 5.3% distribution growth against a backdrop of rising interest rates. With 59% of portfolio income growth linked to inflation, the portfolio also proved its defensiveness as income growth largely offset cap rate movements and CQR experienced a very modest decline in book values. Looking forward, the quality of our portfolio along with the strong sales growth of our tenants and the resilient nature of CQR’s assets will see them continue to deliver income growth and support valuations despite a more subdued economic environment.”
Pacific Square Maroubra
In August 2022, CQR acquired a portfolio of 18 Gull service stations in New Zealand.
In October 2022, CQR acquired of a 49% interest in a portfolio of 51 Long WALE convenience retail properties leased to Z Energy Limited in New Zealand. This transaction was negotiated off-market and followed Ampol’s acquisition of Z Energy, furthering CQR’s relationship with Ampol.
At the same time, CQR also divested its 52% interest in the Coles Distribution Centre, Adelaide (CDC) at book value. The $95.1 million proceeds from the sale were used to fund the acquisition of the Z Energy portfolio.
In April 2023, CQR announced an investment in a convenience long WALE retail partnership with superannuation fund Hostplus, via the acquisition of an initial 18% interest in the Long WALE Investment Partnership 2 (LWIP2). LWIP2 now consists of eleven Endeavour Group leased retail assets, with six located in Queensland (32% of portfolio value), three in Victoria (48% of portfolio value) and two in South Australia (20% of portfolio value).
97% of the CQR portfolio was independently revalued at 30 June 2023. The REIT’s total portfolio decreased in value by $15 million with net acquisitions of $1 million and a valuation movement of -$16 million, inclusive of capital investment of $79 million. The total portfolio cap rate moved from 5.20% at June 2022 to 5.57% at June 2023.
CQR’s strategy is to be the leading owner of convenience retail property, delivering investors a resilient and growing income stream from Long WALE and convenience retail properties. Portfolio curation and active asset management will continue to enhance the portfolio quality through time.
Positive leasing spreads, high occupancy levels and MAT growth are expected to continue. Portfolio income is expected to benefit from direct and indirect inflation-linked rental growth, which will also underpin asset values.
