Charter Hall REIT reports muted impact from COVID-19 in sound FY2020 results

by Jason Roberts

August 12, 2020

The Charter Hall Social Infrastructure REIT has reported a 15.6 per cent increase in operating earnings in its FY2020 full year results as contributions from acquisitions and rental increases outweighed disposal activity and when combined with steady expenses supported returns. 

 

Net property income, the primary driver of operating earnings, was up $4.7 million or 7.9 per cent to $64.3 million in the year, with rental growth contributing $1.6 million and acquisitions, development and disposals combined contributing $4.3 million. 

 

The impact on full year performance of COVID-19 was relatively muted when considering operating profitability however the REIT did take a series of significant actions, including the suspension of earnings and distribution guidance as well as a $123 million capital raise, during the early stages of the pandemic to preserve cash, shore up its balance sheet and secure future viability. 

 

From an operating perspective Charter Hall has agreed to $2.7 million, around 14 per cent of revenue, in rent relief, in both abatements and deferrals, for tenants due to COVID-19 in the three months to June 2020, with a further $2.7 million to be passed in the three months to September 2020. 

 

Commenting on the results Fund Manager Travis Butcher said “Our focus has been to strengthen CQE’s balance sheet with gearing reduced to 16.4% whilst focussing on improving the overall WALE of the portfolio. CQE is well capitalised to manage the ongoing impact of the COVID-19 pandemic and to take advantage of any attractive long WALE social infrastructure opportunities that may arise in the future.”

 

Portfolio contracts due to disposals but overall lease durations expand materially

The number of centres in the Charter Hall portfolio has fallen to 371 from 391 due largely to the disposal of 37 centres in the year, of which 26 were smaller properties in New Zealand, outweighing the additions to the portfolio from acquisitions and completed development sites.

 

A total of 14 centres were either settled or were contracted to settle in the year and five developments were completed with the remaining pipeline consisting of 24 centres. 

 

Notably, the REIT confirmed that there are now two vacant operating properties in the portfolio due to be sold and in the period one development site was disposed of and two other development sites originally in the portfolio are unlikely to proceed. 

 

It is unclear if the circumstances around these five properties are connected to COVID-19 related factors. 

 

Despite the contraction in the centre numbers, the weighted average lease expiry, a key measure of portfolio quality, increased to 12.7 years from 9.9 years driven by a combination of new leases with longer terms being signed, extensions to existing leases and lease option renewals.

 

The consequence of these actions will see the percentage of leases expiring in the next five years fall to 4.4 per cent as at 30 June 2020 compared to 18.9 per cent at the same point in 2019. 

 

Balance sheet shored up with overall risk levels reduced

The REIT’s balance sheet had $75.6 million of cash on hand with outstanding debt of $286 million was $13 million higher than last year but around $34 million lower than that recorded at their half year results to 30 December 2019

 

The reduction in debt levels from the half year mark were made possible via the capital raising exercise that occurred that was announced in early May 2020 which saw $100 million raised from institutional investors and a further $23 million raised from retail investors. 

 

A portion of the capital raised was redirected to pay down outstanding debt with the balance retained on balance sheet. 

 

Notably, overall gearing levels are now down to 16.4 per cent compared to 23.1 per cent last year and 24.9 per cent as at 31 December 2019. 

 

Debt facility limits have also been increased with Charter Hall now having a $500 million facility limit up from $397 million. 

To read the results presentation please click here.

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