Rising Costs and Asset Sales Challenge Charter Hall Retail REIT’s Earnings Growth
Charter Hall Retail REIT reported a strong turnaround with a statutory profit of $108.6 million for the half year ending December 2024, despite a 7% dip in operating earnings. The REIT maintained its interim distribution at 12.30 cents per unit amid ongoing portfolio adjustments and rising finance costs.
- Statutory profit surged to $108.6 million from a $42.1 million loss a year prior
- Operating earnings declined 7% to $73.1 million due to asset disposals and higher finance costs
- Interim distribution maintained at 12.30 cents per unit
- Total assets increased to $4.19 billion, with portfolio valuation gains of $75.3 million
- Significant acquisitions including Glebe Hill Village and progress on Hotel Property Investments takeover
Statutory Profit Recovery Amid Operational Challenges
Charter Hall Retail REIT (ASX: CQR) has delivered a remarkable financial turnaround for the half year ended 31 December 2024, posting a statutory profit of $108.6 million compared to a loss of $42.1 million in the prior corresponding period. This recovery underscores the REIT's resilience despite a 7% decline in operating earnings to $73.1 million, reflecting the impact of asset disposals and increased finance costs.
The REIT's basic earnings per unit soared to 18.69 cents, up from a negative 7.24 cents, while operating earnings per unit slightly dipped to 12.58 cents from 13.52 cents. The board elected to maintain the interim distribution at 12.30 cents per unit, consistent with the previous year, signaling confidence in the REIT's cash flow stability.
Portfolio Movements and Asset Valuations
Total assets grew to $4.19 billion, up from $3.80 billion at mid-year, driven by a $75.3 million net revaluation gain across wholly owned and joint venture properties. The REIT's portfolio remains predominantly externally valued, with 99% of investment properties assessed by independent valuers.
Key acquisitions during the period included the $50.25 million purchase of Glebe Hill Village shopping centre in Tasmania, with the REIT contributing $18.5 million for its 50% stake. Additionally, three wholly owned convenience net lease retail assets were acquired for $44.25 million. Notably, the joint venture CHIT, co-owned with Hostplus, advanced its takeover bid for Hotel Property Investments Ltd (ASX: HPI), acquiring 56.5% of units by period end and increasing to 85.4% post-period.
On the disposal front, the REIT exchanged contracts to sell Lake Macquarie shopping centre for $122.5 million, expected to settle before June 2025, alongside the sale of a convenience retail centre for $12.9 million. These transactions contributed to the reduction in operating earnings but align with the REIT’s strategic portfolio management.
Financial Position and Debt Management
The REIT’s balance sheet remains robust, with net assets attributable to unitholders rising slightly to $2.65 billion. Gearing levels increased to 31.8% on a total debt to total assets basis, reflecting refinanced bilateral facilities totaling $655 million with an extended weighted average maturity of three years and an increased total limit by $100 million.
Finance costs rose to $34.6 million, up from $32.7 million, partly due to the higher debt levels and market interest rate conditions. The REIT continues to employ interest rate hedging strategies, including cross currency swaps, to mitigate exposure.
Outlook and Strategic Considerations
While the REIT benefits from inflation-linked rental income and hedging, management acknowledges ongoing uncertainties from macroeconomic factors such as inflation, interest rates, and consumer spending patterns. The stable distribution and portfolio valuation gains suggest a cautiously optimistic outlook, but the REIT’s future performance will hinge on market conditions and the successful integration of recent acquisitions.
Investors should watch closely the progress of the HPI takeover and the impact of asset disposals on earnings. The REIT’s proactive capital management and strategic asset rotation appear well-positioned to navigate the evolving retail property landscape.
Bottom Line?
Charter Hall Retail REIT’s strong profit rebound and steady distribution signal resilience, but rising costs and portfolio shifts warrant close investor scrutiny.
Questions in the middle?
- How will ongoing asset disposals affect operating earnings in the next reporting period?
- What is the expected impact of the HPI takeover on the REIT’s portfolio and earnings profile?
- How will rising finance costs and interest rate volatility influence future distributions?
