Charter Hall Posts $31M Statutory Profit, Operating Earnings at $28.5M for H1 2024
Charter Hall Social Infrastructure REIT has reported a strong turnaround with a statutory profit of $31 million for the half year ended December 31, 2024, reversing last year's loss. Despite a slight dip in operating earnings and distributions, the REIT maintains a stable financial position amid ongoing economic uncertainties.
- Statutory profit of $31.0 million, reversing prior $10.9 million loss
- Operating earnings of $28.5 million, slightly down from previous year
- Distributions declared at $28.0 million (7.5 cents per unit)
- Net tangible asset backing steady at $3.82 per unit
- Active portfolio management with acquisitions and disposals during the period
Strong Financial Turnaround
Charter Hall Social Infrastructure REIT (CQE) has delivered a notable financial recovery in the six months to December 31, 2024, posting a statutory profit of $31.0 million compared to a loss of $10.9 million in the same period last year. This turnaround reflects improved market conditions and effective portfolio management, despite ongoing macroeconomic challenges.
The REIT's operating earnings, a key internal performance metric adjusted for non-cash and unrealised items, stood at $28.5 million, marginally down from $29.6 million a year earlier. Earnings per unit were 7.6 cents, compared to 8.0 cents previously, while distributions declared to unitholders were $28.0 million or 7.5 cents per unit, slightly below the prior 8.0 cents.
Portfolio and Asset Management
The REIT's portfolio remains robust, with net tangible assets per unit stable at $3.82, underscoring a solid balance sheet. Total assets were valued at approximately $2.14 billion, with liabilities around $708 million, resulting in a gearing ratio of 31.0%, down from 33.0% six months earlier. This conservative leverage profile supports financial flexibility amid uncertain interest rate and inflationary pressures.
During the half, Charter Hall Social Infrastructure REIT actively managed its portfolio, acquiring two social infrastructure assets in South Australia for a combined $6.7 million and exchanging contracts for a $47 million asset in Western Australia, which settled in January 2025. Concurrently, the REIT disposed of multiple childcare and other social infrastructure assets across Queensland, New South Wales, Victoria, and South Australia, realising $68 million in proceeds and contracting further sales expected to settle by December 2025.
Navigating Economic Headwinds
The REIT's directors acknowledge the ongoing uncertainty posed by geopolitical tensions, elevated inflation, and rising interest rates in Australia. However, the portfolio benefits from leases with fixed and inflation-linked rent escalations, providing a degree of income resilience. Interest rate hedging strategies are in place, including recent forward-start swaps, to mitigate refinancing risks and cost volatility.
Valuation gains on investment properties contributed $10.8 million to the statutory profit, reversing a prior period loss, while derivative financial instruments recorded a net fair value loss of $8.4 million. The REIT continues to rely on a disciplined valuation process overseen by an internal committee and independent valuers, with 59% of properties externally valued at period end.
Distribution and Capital Management
Distributions remain a key focus, with the REIT declaring 7.5 cents per unit for the half year, slightly below last year's 8.0 cents. The Distribution Reinvestment Plan (DRP), which offers unitholders the option to reinvest distributions at a 1.5% discount, was suspended in August 2024, reflecting management's cautious capital approach amid market conditions.
Contributed equity increased modestly to $663.6 million, with units on issue rising to 373.6 million. The REIT's liquidity position remains sound, supported by $850 million in debt facilities, all compliant with covenant requirements.
Outlook
Looking ahead, the REIT's management remains vigilant to market dynamics that could impact property valuations, refinancing costs, and tenant performance. While no material changes to operations are anticipated, the REIT's diversified social infrastructure portfolio and hedging strategies position it to navigate the evolving economic landscape.
Bottom Line?
Charter Hall Social Infrastructure REIT’s solid half-year rebound sets a cautious yet confident tone for navigating inflation and interest rate pressures ahead.
Questions in the middle?
- How will the REIT manage potential valuation impacts if interest rates continue to rise?
- What is the outlook for distributions given the slight decline in operating earnings per unit?
- How might the suspended Distribution Reinvestment Plan affect unitholder engagement and capital raising?