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Half Year Report 2018

SECURITY
STABILITY
RESILIENCE

Delivering convenience based non-discretionary retail uses

We have repositioned the portfolio for growth - a process that began 18 months ago. The focus of the portfolio remains convenience based non-discretionary retail uses driven by Australia’s leading major supermarket brands who have delivered a combined MAT growth of 2.9%.

1H FY18
HIGHLIGHTS

Majors MAT growth1

4.1%

MAT growth2

2.3%

Retail property portfolio

$2.9b

5.2% for the period

NTA PER UNIT

$4.19

1.5%

Operating earnings per unit

15.3c

0.6%

Total acquisitions

$215.5m

Divestments of lower growth centres

$229.8m

  1. For stores in turnover
  2. Like-for-like

OUR
STRATEGY

Our goal is to maintain our position as the leading owner and manager of convenience based shopping centres in the Australian market and provide a secure and stable income stream for our investors.

#1
Active Asset
Management

Maintaining strong tenant relationships, optimising tenancy mix through proactive leasing and enhancing the overall shopper experience.

97.8%
stable occupancy
118
lease renewals and 74 new leases reflecting continued focus on specialty leasing
2.3%
Portfolio MAT growth1
6.7yrs
WALE
93% of rental income
generated from convenience based non-discretionary retailers
  1. Like-for-like

#2
ENHANCE
PORTFOLIO
QUALITY

Through value enhancing redevelopment, selective acquisitions of higher growth properties and low growth disposals.

$2.9b
portfolio value
$215.5m forecast higher growth
properties acquired at a yield of 6.0%
$229.8m lower growth
properties divested at an average yield of 6.9%
$70m
committed redevelopments
$160m
redevelopment pipeline

#3
PRUDENT CAPITAL MANAGEMENT

With a focus on a strong and flexible balance sheet, prudent gearing and a sustainable payout ratio.

5.6yrs
weighted average debt maturity
33.9%
pro-forma balance sheet gearing
$50m
debt facility repaid and cancelled

no debt maturing until
FY21

GREG
CHUBB

Retail CEO – Charter Hall

HALF YEAR FUND
MANAGERS REPORT

In a period of consolidation, Charter Hall Retail REIT has delivered on strategy and positioned the REIT for growth.

For the six months to 31 December 2017, the REIT posted a 0.3% growth in operating earnings to $61.9 million or 0.6% growth in operating earnings per unit of 15.30 cents and a statutory profit for the interim period of $80.8 million.

VIEW THE LETTER

With a clear focus on convenience based non-discretionary retail uses, we have repositioned the portfolio for growth―a process that began 18 months ago.”

HALF YEAR FUND
MANAGERS REPORT

Dear unitholders,

In a period of consolidation, Charter Hall Retail REIT has delivered on strategy and positioned the REIT for growth.

For the six months to 31 December 2017, the REIT posted a 0.3% growth in operating earnings to $61.9 million or 0.6% growth in operating earnings per unit of 15.30 cents and a statutory profit for the interim period of $80.8 million.

Securityholders will receive a distribution of 14.00 cents per unit, with the REIT maintaining a sustainable payout ratio range between 90% to 95%. Net tangible assets grew 1.5% to $4.19 per unit.

Positive portfolio performance delivered by an active management approach

We have repositioned the portfolio for growth―a process that began 18 months ago. The focus of the portfolio continues to remain on convenience based non-discretionary retail uses driven by Australia’s leading major supermarket brands who have delivered a combined MAT growth of 2.9%.

The REIT’s $2.9 billion national portfolio of 66 convenience-based supermarket-anchored shopping centres delivered stable occupancy of 97.8% and like-for-like Net Property Income growth of 1.3%.

Our strategy of recycling capital into potential higher growth assets to build a more resilient convenience based non-discretionary retail portfolio has enhanced the quality of the REIT’s portfolio and increased the average asset value from $44.7 million as at 30 June 2017 to $50.1 million as at 31 December 2017.

The REIT’s supermarkets continued to perform well with 51% of supermarket tenants now paying turnover rent with a further 19% within 10% of their turnover thresholds. Supermarket MAT growth for stores paying turnover rent was 3.8% for the period.

The REIT’s tenant composition, has seen the portfolio achieve 93% of rental income from convenience based non-discretionary retailers with 76% of major tenant rental income generated by supermarkets. ALDI continues to expand across the portfolio and has become the 7th largest tenant, with further additional stores to be added to the portfolio, providing shoppers with greater convenience and choice.

With a firm focus on strong tenant relationships and creating convenient shopping experiences through enhanced tenant optimisation, the REIT had an active leasing period with 74 new leases and 118 lease renewals, with a strong focus on food-based and non-discretionary tenants.

A disciplined investment strategy that is delivering a convenient shopping experience

The REIT has delivered on its disciplined investment strategy to enhance portfolio earnings through value accretive redevelopments, selective acquisitions of properties with potential for higher growth and buyback of units.

During the period, the REIT contracted to divest 11 lower growth properties valued at $229.8 million (CQR share) at an average yield of 6.9%. The REIT recycled capital into the acquisition of Salamander Bay Shopping Centre, NSW for $174.5 million and the Highfields Village Shopping Centre, Qld for $41.0 million. Both assets were acquired at a yield of 6.0%, are located in growth corridors, and operate as the primary convenience centre in their respective locality.

During the period, the major redevelopment of Lake Macquarie, NSW commenced. The redeveloped centre will include a new, expanded Coles supermarket, improved customer amenity with the full integration of the Lake Macquarie Fair and Mount Hutton Plaza shopping centres.

The REIT also commenced the redevelopment of Wanneroo Central, WA. The expansion of the centre will include a new full line ALDI supermarket, casual dining precinct and additional specialty retail space providing shoppers with a greater level of amenity and transforming the centre into an exciting retail precinct.

Proactive capital management focused on a strong and flexible balance sheet

The REIT has continued to focus on diversifying and extending its debt profile and the following initiatives have been completed with no debt maturing until FY21:

  • Repayment and cancelled $50 million debt facility maturing in July 2018
  • RP2 Joint Venture bank debt facility upsized and extended to FY22

These prudent capital initiatives have maintained the REIT’s weighted average debt maturity at 5.6 years, with an average hedge maturity of 3.8 years. CQR’s pro-forma balance sheet gearing remains in the middle of the target 30-40% range at 33.9%, with cash and undrawn debt capacity of $84 million.

Strategy and FY18 operating earnings guidance

The REIT’s performance is underpinned by a focus on four key areas:

  • Convenience based non-discretionary supermarket anchored retail and enhancing the overall shopper experience
  • Active asset management, maintaining strong tenant relationships and optimising tenancy mix through proactive leasing
  • Enhancing the portfolio quality, through value accretive redevelopments and portfolio curation
  • Prudent capital management, with a focus on a strong and flexible balance sheet complemented with a sustainable payout ratio

Barring any unforeseen changes to operating conditions, and following the completion of asset sales and acquisitions, FY18 earnings guidance is expected to be 30.40 to 30.60 cents per unit. The distribution payout ratio range is expected to remain between 90% and 95%.

GREG
CHUBB
Retail CEO – Charter Hall

CASE
STUDY


Tenant customer focus

“Maintaining strong relationships with our tenant customers is a core focus with 70% of specialty tenants intending to renew their lease on expiry.”

CHRISTINE KELLY
Deputy Fund Manager

Tenant customer focus

Maintaining strong relationships with our tenant customers is a core focus with 70% of specialty tenants intending to renew their lease on expiry.

  • Wesfarmers and Woolworths businesses represent 48% of rental income
  • 93% of rental income is generated from convenience based non-discretionary retailers1


Top 10 retail groups2


  1. Limited exposure to discretionary categories (jewellery, homeware and clothing and apparel)
  2. Calculated by rental income


Positive year on year increases in all areas of relationship satisfaction1

  • Tenant customers rate their relationship with Charter Hall Retail as positive
  • 70% of specialty tenants intend to renew their lease on expiry
  • Efficiency and commitment to long term relationships are driving preference, satisfaction and performance with Charter Hall Retail
  • Charter Hall is in the top 5 landlords in Australia that are likely to be recommended by retailers

How tenants view Charter Hall Retail


  1. As measured by Monash University as part of the annual Net Promoter Score survey 2017

PORTFOLIO
PERFORMANCE

Our geographically diverse portfolio benefits from exposure to high growth corridors and operate as the dominant shopping centre in each region.

Total value
of property portfolio

$1,481.6m

Total value
of property portfolio

$476.1m

Total value
of property portfolio

$426.0m

Total value
of property portfolio

$111.0m

Total value of
property portfolio

$30.1m

Total value
of property portfolio

$286.9m

OCCUPANCY
BY STATE

NSW 98.5%
ACT 96.4%
QLD 97.5%
VIC 98.7%
SA 95.7%
WA 97.0%
NT 95.1%
TAS 100.0%
RETAIL SALES
$4.9b
PORTFOLIO OCCUPANCY
97.8%
TENANTS
1,800+
CUSTOMER VISITS ANNUALLY
>150m
GROSS LETTABLE AREA (GLA)
>621,000

PORTFOLIO AND MAJORS WALE

ASSET VALUE BY STATE

OUR BOARD
AND MANAGEMENT