Charter Hall Faces Valuation Headwinds but Maintains Strong Balance Sheet and Guidance

Robust Portfolio Performance Amid Market Dynamics

Charter Hall Long WALE REIT (ASX: CLW) has released its half-year results for the six months ending 31 December 2024, showcasing a resilient and well-diversified real estate portfolio. The REIT reported a near-perfect occupancy rate of 99.8%, underpinned by long-term leases averaging 9.7 years to blue-chip tenants across retail, industrial, office, and data centre sectors.

Despite a challenging real estate valuation environment marked by cap rate expansions since mid-2022, CLW’s portfolio valuation remains 17% higher than in 2020, buoyed by contracted rental growth and strategic asset management. The like-for-like net property income grew by 3.5%, supported by 54% of leases indexed to CPI, providing a natural hedge against inflationary pressures.

Financial Discipline and Capital Management

The REIT delivered operating earnings per security (EPS) of 12.5 cents for the half-year, consistent with its full-year guidance of 25.0 cents. Distributions per security were also maintained at 12.5 cents, reflecting a stable income stream for investors. Operating expenses and finance costs declined, largely due to the completion of a $300 million divestment program, which included the sale of the Inghams agri-logistics portfolio and a social infrastructure asset.

Capital management remains a key focus, with CLW refinancing $310 million of debt, extending maturities by nearly three years to FY30, and maintaining a balanced debt maturity profile averaging four years. The REIT’s balance sheet gearing stands at a conservative 31.8%, comfortably within its target range of 25% to 35%, and Moody’s reaffirmed its Baal stable credit rating, underscoring financial resilience.

Strategic Portfolio Adjustments and Operational Highlights

CLW’s portfolio curation strategy continued with targeted acquisitions in hospitality assets adjoining existing holdings, enhancing income security with long lease terms to Endeavour Group. The REIT also secured a lease extension and warehouse expansion with Coles at its Perth Distribution Centre, increasing gross lettable area by over 11,000 sqm and resetting the lease term to 12 years, exemplifying active asset management to future-proof income streams.

The portfolio remains diversified across geography and sectors, with significant exposure to defensive tenant industries such as government, convenience retail, and data centres. This diversification, combined with a weighted average rental review of 3.1%, positions CLW well to navigate economic cycles.

Sustainability and ESG Leadership

Charter Hall Long WALE REIT continues to demonstrate leadership in environmental, social, and governance (ESG) initiatives. The REIT maintains net zero carbon emissions for Scope 1 and 2, with a growing portfolio of solar installations supplying tenants directly. It achieved a 78-point score in the 2024 GRESB assessment, ranking first among Australian peers, and actively supports community and First Nations partnerships, reflecting a commitment to social impact alongside financial performance.

Outlook and Guidance

Looking ahead, CLW reaffirmed its FY25 guidance of 25.0 cents for both operating EPS and distributions per security, implying a distribution yield of approximately 6.4% based on the current security price. The REIT’s strategic focus on long WALE assets, tenant quality, and disciplined capital management provides a solid foundation for sustainable income growth despite ongoing market uncertainties.