Charter Hall Social Infrastructure REIT continues gradual diversification away from ECEC

Charter Hall Social Infrastructure REIT reconfirmed its strategy to gradually diversify its exposure to the early childhood education and care (ECEC) sector via divestment and then re-investment into non ECEC assets in its half year 2025 results. 

In the six months to December 2024 the Trust divested 16 childcare assets, with eight having settled prior to the period end and with the balance due to settle in early 2025, with the proceeds of $84 million used to acquire a pathology laboratory in Western Australia leased to Clinipath Pathology. 

Notably the yield achieved on the sale of the ECEC assets was just 4.6 per cent, materially lower than the 6.4 per cent yield paid for the Clinipath Pathology laboratory, highlighting the strong bid that remains for ECEC assets despite interest rates being at cycle highs and the relative value on offer in other social infrastructure verticals. 

Post the divestments the Trust’s ECEC portfolio will stand at 330 centres in total, and just 304 when excluding leasehold centres, well below levels recorded over the course of the last nine years. 

From a development perspective Charter Hall’s retreat from ECEC greenfield activities, which commenced in earnest post COVID-19, continued unabated with just one site included in its development portfolio as at 31 December 2024. 

The gradual recycling of ECEC divestment proceeds, and absence of brownfield or greenfield sites to replace the sales, has seen the share of income generated from the early learning sector across its portfolio fall to 74 per cent currently down from as high as 96 per cent in 2019. 

Notably the percentage of total income generated from the REITs largest tenant, Goodstart Early Learning, is now at 32 per cent, around half of the 63 per cent of income Goodstart generated across the portfolio in 2015. 

Charter Hall sweetens results with announcement of $25m buyback

The Trust generated earnings of $28.5 million, down 3.7 per cent compared to the same period last year, as the income drag from ECEC divestments and slightly higher financing costs offset 3.2 per cent rental increases and steady operating costs. 

Earnings per unit and dividends per unit were also lower compared to last year marking 5.0 per cent and 6.2 per cent declines to 7.6 cents and 7.5 cents respectively. 

In addition to its results the Trust also confirmed it would commence an on-market buy-back of units amounting to $25 million, a move that will see the Trust actively acquire outstanding shares using excess cash on its balance sheet. 

Charter Hall Social Infrastructure REIT’s Fund Manager, Travis Butcher said the Fund’s portfolio is in a strong position with an 11.9 year WALE, 100 per cent occupancy and significant rental growth potential through market reviews on 43 per cent of the portfolio’s income over the next four years. 

“We will continue to execute on its strategy and actively manage the portfolio of high quality social infrastructure assets to maintain income security and capital growth,” he added. 

“We expect that there will continue to be significant growth opportunities in social infrastructure assets, favourable demographic trends and the essential nature of the industry, including government backing.”

To view the results presentation please see here.