Charter Hall REIT reports jump in operating profits in Half Year 2020 results

by Jason Roberts

February 12, 2020

The Charter Hall Social Infrastructure REIT (CQE) has reported a 20.3 per cent increase in operating earnings and a 16.1 per cent increase in statutory earnings in its half year 2020 results as higher rental income and lower costs combine to improve profitability. 

 

Net property income, the primary driver of operating earnings, was up 8.8 per cent to $32.1 million, helped by acquisitions and rental growth. Total operating expenses fell by 7.3 per cent to $8.8 million driven by lower financing costs. 

 

Statutory earnings grew at a more modest pace due largely to the fair value gains component of this earnings metric being 5.7 per cent lower than last year. 

 

Net tangible assets per unit was $3.05 up 3.0 per cent with the distribution per share up 4.0 per cent to 8.35 cents. 

 

Overall portfolio remains steady, rental growth modest, focus on new leases

 

The overall Charter Hall portfolio consists of 391 operating centres, just four more than last year, with the geographical and tenant mixes remaining broadly similar. Queensland continues to be its key state exposure and Goodstart Early Learning its largest tenant. 

 

Like for like for like rental growth was 2.0 per cent, down from 2.6 per cent last year and continuing a downward trend that has been in place for a number of years. 

 

To counter this trend, Charter Hall have worked hard to shift a larger proportion of their leases to fixed annual increases (as supposed increases linked to the consumer price index (CPI) which has trended lower over the years) and has had some success in doing so, as noted in the confirmation that 40 Goodstart leases have been renegotiated to fixed annual increases and with longer terms. 

 

The net of these and other lease related actions will see the CPI based review component of their lease portfolio fall to 41 per cent by FY21. 

 

Acquisition activity steps up and stage set for multiple development completions in 2020

 

In the period seven operating centres were purchased and settled for $41.6 million at a purchase yield of 6.3 per cent. A further 8 centres were contracted but had not settled by the period end. These centres had a value of $45.6 million and purchase yield of 6.5 per cent. 

 

From a development perspective the Group now has 30 sites under development with a total of 9 centres expected to be completed and delivered in the next 6 months, and a further 20 delivered in the 12 months after. 

 

The combination of soon to settle acquisitions and expected development completions will see the overall portfolio numbers increase by a minimum of just shy of 10 per cent, assuming there are no disposals in the next 18 months, signalling the intent of management to grow the business. 

 

Debt facilities renegotiated higher as source of funds for growth created

 

The Group’s debt facilities were renegotiated higher prior to releasing their results, with the previous facility of $397 million upped to $500 million leaving headroom of around $179 million to fund contracted acquisitions ($45.9m), the development pipeline ($72.8m) and more if required. 

 

Notably the cost of debt borne by the business has continued to fall, reaching 3.4 per cent down from 4.0 per cent last year. 

 

Overall gearing levels are steady at 24.9 per cent. 

 

Commenting on the results Charter Hall Social Infrastructure REIT’s Fund Manager, Travis Butcher said “CCS funding has been a positive for the industry through increased usage and overall affordability. This has provided additional confidence in the market,which has allowed CQE to negotiate 45 new leasing transactions for between 15 and 20 years, reducing the reliance on CPI for rental growth. We will continue to assess the pipeline of opportunities to provide investors with stable and secure income and capital growth.”

 

To read the results presentation please click here

 

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