Charter Hall Social Infrastructure portfolio rebalancing continues as ECEC exposure falls

Charter Hall Social Infrastructure Fund REIT (CQE) has reported its Full Year 2023 results, confirming that early childhood education and care (ECEC) freeholds now account for 77.0 per cent of income generated, down from 86 per cent two years ago. 

 

The fall comes amidst an ongoing strategic commitment to diversify the fund to other social infrastructure assets that now include the likes of Brisbane Bus Terminal, Geosciences Australia, Mater Headquarters and Training Facilities, SA Emergency Command Centre and more. 

 

“FY23 saw CQE’s continued diversification into larger social infrastructure assets that provide greater income resilience and improve the portfolio quality,” Fund Manager, Travis Butcher said. 

 

“We acquired some excellent social infrastructure assets that provide greater income resilience and improve the portfolio quality, as well as performing critical roles in the community and which are strategically located and difficult to replace.”

 

Net property income was up 18.9 per cent to $100.5 million but operating earnings were down 5.9 per cent to $59.2 million due largely to a 147.8 per cent increase in finance costs driven by interest rises across the year. 

 

ECEC passing yields and overall valuation ticks higher 

 

The REIT closed out the year with 358 operating ECEC centres in the portfolio with Queensland the main jurisdiction of locations (24.7 per cent of portfolio) and Goodstart Early Learning the main tenant (34 per cent of income).

 

The portfolio valuation ticked higher to $1.702 billion, up 0.5 per cent year on year and passing yields used to value portfolio also ticked higher to 4.90 per cent, up from 4.80 per cent last year. 

 

 

The yield gap between CQE’s passing yield and the underlying RBA prime rate has narrowed considerably over the course of the last two years with no corresponding move higher in passing rates evident thus far. 

 

The stickiness of ECEC freehold yields was also evident in Arena REIT’s FY23 results which although higher than CQE’s at 5.13 per cent are still relatively stable despite the underlying interest rate environment. 

 

Charter Hall moderately active in acquisitions but greenfield pipeline still small

 

Over the course of FY23 CQE acquired three newly developed childcare facilities and one existing centre for $26.3 million on an average yield of 4.9 per cent with new 15 year leases in metropolitan locations.

 

Four development sites were completed with the Trust closing out the year with just four active developments in its greenfield portfolio, the lowest level for at least eight years and confirming the broader strategy to diversify away from ECEC assets. 

 

 

Twelve non-core freehold childcare assets were sold in the period netting $40.4 million, a 4 per cent premium to book value and 4.5 per cent yield. 

 

During FY23, CQE extended and increased its debt facilities to $850 million and now has a weighted average debt maturity of 2.9 years with diversified funding sources and no debt maturing until January 2025.

 

The current balance sheet gearing of 32.2 per cent is within the Trust’s target range of 30 per cent to 40 per cent with look through gearing currently at 32.8 per cent.

 

To access CQE’s 2023 presentation click here.