Release Date: August 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Charter Hall Long WALE REIT (CHLWF, Financial) has a best-in-class $5.8 billion diversified real estate portfolio with a long WALE of 10.5 years.
- The portfolio has an impressive occupancy level of 99.9%, contributing to stable cash flow.
- Operating earnings per security were $0.26 for the full year, in line with FY '24 guidance.
- The REIT completed $762 million of divestments, using proceeds to reduce debt and strengthen the balance sheet.
- Moody's reaffirmed its Baa1 investment grade credit rating for the REIT, demonstrating strong credit support.
Negative Points
- Net property valuation decreased by $626 million, leading to a 17.2% drop in NTA from $5.63 to $4.66 per security.
- Finance costs increased due to a rise in the weighted average cost of debt from 3.1% to 4%.
- The REIT's weighted average cost of debt is now 4%, reflecting higher interest expenses.
- The REIT's balance sheet gearing is at 30.1%, which, while within the target range, indicates a need for continued prudent capital management.
- FY '25 operating earnings guidance is slightly lower at $0.25 per security, reflecting potential challenges ahead.
Q & A Highlights
Highlights of Charter Hall Long WALE REIT (CHLWF) Earnings Call
Q: Can you talk about how you decided which assets to sell and if there are plans for more sales?
A: We sold a combination of assets, including short WALE office assets and the Inghams portfolio. We chose assets that we could get good outcomes on and that were not critical for our portfolio. Currently, there are no further asset sales planned.
Q: Does the 6.1% average income yield on sold assets suggest more risk to cap rates?
A: The sold assets were high-yielding, and we retained the core of our long WALE high-quality portfolio, which trades on lower cap rates.
Q: Can you provide more details on the FY '25 guidance, including expectations for NPI growth and interest expenses?
A: The guidance includes all announced asset sales, current WALEs, and our disclosed hedge book. Interest rates are based on the current market curve. The buyback is not included in the guidance.
Q: What is your expectation for potential further cap rate expansion over the next 12 months?
A: We see this year as a trough year for valuations. Any further devaluations are expected to be smaller, if at all, depending on where interest rates go.
Q: Can you discuss the transaction markets and the competitiveness of your asset sale program?
A: There is more activity in the market as buyers gain better visibility on interest rates. We had good outcomes, selling more than initially planned, reflecting the quality of our assets.
Q: Can you provide details on the buyers of the Myer Melbourne and telco exchanges assets?
A: The telco exchanges were sold to a Charter Hall fund, while the Myer Melbourne sale was to an external buyer.
Q: Can you clarify the '25 hedging and its impact on earnings?
A: We moved some of the hedging from '25 to '26 to extend cover. The change in the hedge profile is a significant factor in the earnings step down from '24 to '25.
Q: How much was spent on leasing maintenance CapEx over the period?
A: Approximately $11 million was spent on maintenance CapEx for FY '24.
Q: Can you clarify the inclusion of the Ingham's portfolio and Red Cross in the earnings bridge?
A: The earnings bridge includes these disposals, but they are partial year contributions.
Q: Did you see changes in discount rates and growth rates across the portfolio during the valuation process?
A: Yes, we saw changes in discount rates and cap rates, leading to the reported valuation declines.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
