CQE Reports $28.5M Operating Earnings, Raises FY25 Distribution Guidance to 15.2 Cents

Strong Financial Performance and Distribution Upgrade

Charter Hall Social Infrastructure REIT (ASX: CQE) has delivered a robust set of results for the six months ending 31 December 2024, reporting operating earnings of $28.5 million, equating to 7.6 cents per unit (cpu). The REIT declared distributions of 7.5 cpu for the half, reflecting steady income generation from its portfolio of social infrastructure assets. Notably, CQE upgraded its full-year FY25 distribution guidance to 15.2 cpu, up from 15.0 cpu, signaling confidence in ongoing earnings growth and cash flow stability.

Portfolio Expansion and Strategic Asset Rotation

Active portfolio management remains central to CQE’s strategy. During the half, the REIT acquired a modern pathology laboratory in Osborne Park, Perth, for $47 million, securing an attractive initial yield of 6.4%. This asset, leased to Clinipath Pathology, a subsidiary of ASX-listed Sonic Healthcare, features a long-term triple-net lease with 8.2 years remaining and annual CPI-linked rent reviews capped at 3.5%. The acquisition aligns with CQE’s focus on essential community services and social infrastructure properties with strong covenant strength.

Simultaneously, CQE divested 16 childcare assets totaling $84 million at an 8.6% premium to book value and an average yield of 4.6%. These divestments underscore the REIT’s commitment to portfolio quality enhancement and earnings resilience, while capitalising on strong market demand and liquidity for childcare properties.

Robust Portfolio Metrics and Rental Growth Potential

The REIT’s portfolio now stands at $2.1 billion, boasting 100% occupancy and a weighted average lease expiry (WALE) of 11.9 years. CQE achieved a weighted average rent review increase of 3.5% for the calendar year 2024, with 15 market rent reviews completed during the half delivering a notable 16.4% uplift. This highlights the under-rented nature of CQE’s childcare assets and the significant upside potential from upcoming market reviews, which cover 43% of rental income over the next four years.

Independent valuations conducted on 59% of the portfolio as at 31 December 2024 showed a 0.5% increase on like-for-like book values, reflecting the resilience and ongoing demand for social infrastructure assets.

Capital Position and Unit Buy-Back Initiative

CQE maintains a conservative capital structure with gearing at 31.0%, comfortably within its target range of 30-40%. The REIT benefits from a weighted average debt maturity of 3.4 years and no debt maturities until July 2027, supported by diversified funding sources and substantial hedging coverage. Average hedging stands at 85% through to June 2025 at a hedged rate of 3.1%, providing interest rate stability.

In a move to enhance shareholder value, CQE announced an on-market unit buy-back program of up to $25 million. This initiative reflects management’s confidence in the REIT’s valuation and outlook, while potentially supporting unit price appreciation.

Outlook

Looking ahead, CQE remains focused on executing its strategy of active portfolio curation and capitalising on demographic trends driving demand for social infrastructure. The combination of long WALE, strong tenant covenants, and rental growth opportunities positions the REIT well to sustain income security and deliver capital growth. Investors will be watching closely how the newly acquired pathology asset integrates and how the buy-back program influences market dynamics.