Earnings Slip 7% as Charter Hall Retail REIT Navigates Rising Debt Costs

Strong Portfolio Fundamentals Amid Market Challenges

Charter Hall Retail REIT (ASX: CQR) released its half-year results for 2025, showcasing resilient operational metrics despite a modest decline in operating earnings. The REIT reported a 3.0% growth in same property net property income (NPI) and a total moving annual turnover (MAT) increase of 3.4%, underscoring the strength of its convenience retail portfolio.

Occupancy levels remained robust at 98.7%, reflecting the quality and appeal of the REIT’s assets. This stability is particularly notable given the ongoing challenges in the retail sector, where discretionary spending patterns remain cautious.

Strategic Acquisition Enhances Income Profile

A key highlight of the period was the acquisition of Hotel Property Investments (HPI), a diversified $1.3 billion portfolio comprising 58 pub and accommodation assets. Charter Hall and its wholesale joint venture partner Hostplus now collectively own 85.4% of HPI, with plans to move to full ownership. This acquisition is expected to significantly bolster CQR’s income growth trajectory, driven by HPI’s strong CPI-linked rent review structure and low maintenance capital expenditure.

The integration of HPI assets, which benefit from long weighted average lease expiries (WALE) and strong tenant covenants, aligns with CQR’s strategy to focus on non-discretionary convenience retail assets that offer resilience through economic cycles.

Financial Performance and Capital Management

Despite positive operational metrics, operating earnings fell 7.0% to $73.1 million compared to the prior corresponding period, influenced by the impact of divestments and higher finance costs as the weighted average cost of debt rose from 4.3% to 5.0%. Notably, distributions per unit were maintained at 12.3 cents, consistent with the previous half-year, supported by a slight increase in net tangible assets (NTA) per unit to $4.57.

Charter Hall also demonstrated prudent capital management, refinancing $655 million of debt and increasing debt facilities by $100 million to extend tenure and reduce margins. The REIT’s balance sheet remains well-positioned with a look-through gearing of 37.9% and a weighted average debt maturity of three years, supported by Moody’s stable Baal issuer rating.

Operational Highlights and Leasing Momentum

The convenience shopping centre portfolio continues to perform strongly, with specialty leasing spreads improving by 3.8% and a high retention rate of 84%. Specialty sales productivity reached a historical high of $11,278 per square metre, while supermarkets within the portfolio showed resilient 3.9% MAT growth, with 87% paying turnover rent or close to it.

Active asset management and portfolio curation remain central to CQR’s strategy, with recent acquisitions including Glebe Hill Village in Tasmania and several fuel and pub assets, balanced by divestments such as Lake Macquarie Square. The REIT’s focus on assets with high barriers to competition and long-term leases underpins its income stability.

Sustainability and ESG Leadership

Charter Hall continues to advance its environmental, social, and governance (ESG) commitments, targeting net zero emissions from July 2025 through on-site solar generation and renewable energy agreements. The REIT achieved a top ranking in the 2024 GRESB Report for listed retail entities in Australia and New Zealand and maintains a 3 Star Green Star Performance Rating, reflecting its leadership in sustainable property management.

Outlook and Market Positioning

Looking ahead, Charter Hall Retail REIT reaffirms its FY25 operating earnings guidance of approximately 25.4 cents per unit and expects distributions to remain steady at 24.7 cents per unit, representing a yield of 7.5%. The REIT’s strategy remains firmly focused on non-discretionary convenience retail assets, leveraging inflation-linked rents, positive leasing spreads, and portfolio curation to drive resilient income growth.

With the HPI acquisition enhancing its income profile and a well-managed balance sheet, CQR is positioned for growth despite the broader retail environment’s uncertainties.