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Charter Hall Retail REIT (ASX:CQR) Full Year 2024 Earnings Call Highlights: Record Occupancy ...

GuruFocus News
·3-min read

  • Operating Earnings Per Security: $27.4, in line with full year guidance.

  • Underlying Same-Property NPI Growth: 3.6%, up from 3.3% last year.

  • MAT Growth: 3.7% for the year.

  • Leasing Transactions: 313 completed, with positive leasing spreads of 2.7%.

  • Portfolio Occupancy: Increased to 98.8%, with total portfolio occupancy above 99%.

  • Balance Sheet Gearing: Reduced to 26.7%.

  • Net Property Income: Grew by 3.2% to $245.3 million.

  • Distribution Per Unit: $24.7, reflecting a payout ratio of 90.3%.

  • Investment Property Value: Decreased to $4.05 billion.

  • Net Tangible Assets (NTA) Per Unit: Decreased by 4.7% to $4.51.

  • Debt Collection: Over 99.3% at 30 June 2024.

  • Balance Sheet Capacity: Over $400 million available.

  • Weighted Average Cost of Debt: Increased from 3.4% in FY '23 to 4.4% in FY '24.

  • Supermarket MAT Growth: 4.3%.

  • Specialty Tenant Sales Productivity: Reached a record high of $11,077 per sqm.

  • Tenant Retention Rate: High at 82%.

Release Date: August 16, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

  • Charter Hall Retail REIT (ASX:CQR) achieved a record high occupancy rate of 98.8% in its convenience shopping center portfolio.

  • The REIT completed 313 leasing transactions with positive leasing spreads of 2.7%, indicating strong demand and successful lease negotiations.

  • CQR's balance sheet capacity increased to over $400 million, providing significant investment flexibility.

  • The acquisition of Eastgate Shopping Center in Bondi Junction enhances the portfolio with high-quality metro centers.

  • CQR's portfolio benefits from 60% of total income growth being directly or indirectly linked to inflation, providing resilience against economic fluctuations.

Negative Points

  • Finance costs increased due to a rise in interest rates, impacting overall financial performance.

  • Net property income growth was partially offset by divestments, leading to a decrease in investment property value.

  • The weighted average cost of debt increased from 3.4% to 4.4%, reflecting higher borrowing costs.

  • The REIT's net tangible assets (NTA) decreased by 4.7% to $4.51 per unit, primarily due to valuation decreases.

  • Higher pressure on insurance, security, and cleaning costs was noted, although offset by savings in electricity.

Q & A Highlights

Q: Can you provide details on the expected CapEx for FY '25 and whether this is a consistent annual target? A: Joanne Donovan, Head of Retail Finance, stated that the CapEx for FY '25 is expected to be similar to FY '24, around $60 million. This includes pad site developments, center upgrades, and operational CapEx. Benjamin Ellis, Retail CEO, added that the amount could vary depending on opportunities to unlock further potential across properties.

Q: What is the yield on cost for projects like the childcare and swim school developments? A: Benjamin Ellis explained that the yield on cost varies depending on whether land is acquired or existing land value is utilized, typically ranging between 8% and double digits.

Q: With a strong balance sheet, is there consideration for a buyback? A: Benjamin Ellis mentioned that a buyback is discussed at every Board meeting. While there are attractive market opportunities, if they do not materialize and the company continues to trade at a significant discount, the Board would consider a buyback.

Q: How do you view the market for convenience net lease assets and the sustainability of their cap rates? A: Benjamin Ellis stated that valuations are informed by transactional activity, and they are comfortable with the current cap rates. The portfolio's high-quality leases and strong rental growth support these valuations.

Q: Can you elaborate on the zero cost hedge restructure and its impact on interest expenses? A: Joanne Donovan explained that the hedge restructure was done to extend low hedges rolling off in June of next year into FY '26. This increased the hedge rate for FY '25 but provides confidence in finance costs for FY '26.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.