Charter Hall Long WALE REIT (ASX:CLW) 1H18 results


by Rachael Jones

Charter Hall Long WALE REIT Limited (ASX:CLW) Fund Manager, Avi Anger, talks 1H18 results, portfolio metrics, acquisitions and FY18 outlook.

Rachael Jones: Hello, I'm Rachael Jones from the Finance News Network. Joining me today from Charter Hall Long WALE REIT is Fund Manager, Avi Anger.

Welcome back!

Avi Anger: Thank you, Rachael.

Rachael Jones: First up, can we just start with a quick introduction to your company?

Avi Anger: The Charter Hall Long WALE REIT is an ASX Top 200 listed Real Estate Investment Trust, with our aim of providing investors stable and secure income and capital growth over a period of time for investing in long-leased property. Our portfolio is diversified across office industrial and retail properties. We have about one-and-a-half billion of assets. They're hundred percent occupied and our average lease term across our portfolio is a long dated 11.3 years. We pay quarterly distributions to our investors.

We're managed by the Charter Hall group, one of Australia's leading property companies, with 22 billion properties under management, 450 staff, and about 360 properties under management.

Another important point is that Charter Hall's interests are aligned with the REIT. It has an approximately a 200 million dollar investment in the REIT, representing about 20 percent of the REIT's capital, so the manager's very motivated and aligned with the REIT.

Rachael Jones: And so your first half results, what were the highlights?

Avi Anger: For the first half of financial year 2018, we delivered operating earnings of 13 cents per security. We're on track to deliver operating earnings for the full year of 26.4 cents per unit, as we undertook at the commencement of the year. Our gearing for the period sits pretty modestly. We're in lower end of our gearing range of 25 to 35 percent balance sheet gearing.

We also acquired two properties during the period, the main one being the Virgin head office building in Brisbane. We undertook a 94 million dollar capital raising in December associated with that acquisition.

At December, our net tangible assets per security at four dollars and two cents. That's about 4.7 percent ahead of where we were when we listed about 18 months ago.

Rachael Jones: Now to the portfolio in more detail, can you give us an update on properties and tenant profile?

Avi Anger: Our portfolio's very high quality portfolio, at least some of the highest profile tenants in Australia, and the best quality tenants. Our tenants, our main tenants are groups like Woolworths, Coles, Westpac, Metcash, the Australian Government, so very good quality tenants. Our sectors that our tenants are exposed to are predominantly non-discretionary, which means that our tenants will perform well through economic cycles because what they're delivering is fairly non-discretionary goods and services. Our lease expiry profile is long-dated, so we have 11.3 year average lease expiry across our portfolio, which means that we have continuity in income and certainty of income for a very long period of time. We also have a very good geographic diversification with our properties diversified across Australia with a strong focus on the eastern seaboard.

Rachael Jones: And how about your new leases and acquisitions?

Avi Anger: During the half-year, we were able to agree a lease extension with one of our key tenants in the portfolio, being Electrolux in Adelaide. That lease we extended for a further five years, which takes the lease expiry of that property to close to 12 years. We got in well before lease expiry, still with about seven years left on the lease, and we were able to negotiate a lease extension with Electrolux, and that sort of demonstrates the strong relationships we have with our tenant customers and our ability to work closely with them to get good outcomes for both ourselves and the tenants.

We also, as I mentioned earlier, we acquired the Virgin head office building in Brisbane that's leased to Virgin Airlines with eight and a half years remaining and it's their main head office for Australia. It's a very attractive area of Bowen Hills. That property has fixed three and a half percent increases for the balance of the term, and it's those annual rental increases that we have across all the assets in our portfolio that should underpin growing distributions year on year for our trust.

Rachael Jones: So having recently purchased the Virgin head offices, can you give me a comment on the competition for long-term leases.

Avi Anger: Look, the competition for good quality assets is very strong, it has been for some time, people recognize quality assets and want to buy long-lease, high quality assets. We're very fortunate in that we have a very good reputation in the market and we're part of the Charter Hall Group as well, which is one of the largest property groups, and we have a dedicated team within the Charter Hall Group of transaction managers and acquisition managers scouring the market for opportunities and we source those opportunities both off-market and on-market and we have a very strong network of brokers and owners and tenants when it comes to opportunities such as sale/leaseback that we're able to tap into and really access high quality product that not necessarily everyone would have access to.

Rachael Jones: And for the last question, what is the outlook for the second half of this year?

Avi Anger: Barring any unforeseen events with forecasting operating earnings of 26.4 cents per security, that's ahead of our pds guidance and ahead of our distribution from last year, and we payout 100 percent of our operating earnings, which on the current share price represents a very attractive distribution.

Rachael Jones: Avi Anger, thanks for the update.

Avi Anger: Thank you for having me.