Charter Hall Retail REIT delivers 4pc growth

Charter Hall Retail REIT will focus on increasing its portfolio with larger-scale, food-anchored neighbourhood shopping centres after posting a 4 per cent rise in sales growth for the September quarter.
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This was boosted by the improved performance of its two major tenants, Woolworths and Coles, with additional revenue coming from its Aldi stores. The trust said there was a focus on increasing the number of Aldi supermarkets in the portfolio.

Overall, for stores paying turnover rent, growth was 4 per cent of anchor tenant moving annual turnover (MAT) and 2.7 per cent for all stores. Occupancy remained stable at 98 per cent with specialty sales growth consistent with the previous period

As part of its asset renewal program, the trust has appointed Colliers International and Stonebridge Property Group to market the Gordon Centre, in Sydney, including the Gordon Village and adjoining assets, for sale.

Charter Hall Retail fund manager Scott Dundas said the decision to appoint agents follows “unsolicited inquiries to purchase the centre that indicated a realisable value significantly in excess of current book value reflecting the redevelopment potential of the site”. It has a book value ($119.2 million at 6.00 cap rate) and was bought by the trust in December 2010 for $67 million.

“The potential future sale of this asset is in addition to assets already identified for sale as part of the 2017 financial-year results. Existing 2018 guidance does not include the financial impact of the sale of this centre,” Mr Dundas said.

“In the event that the asset is sold, proceeds of the sale will be directed towards repaying debt and ongoing capital management activities, including the further buyback of Charter Hall Retail REIT securities.”

The trust is also contracted to divest its Moranbah centre in Queensland for $25 million with a December settlement. It also sold a standalone Woolworths in Kerang, Victoria, for $15.7 million, compared with the book value of $14.55 million on a 6 per cent yield. These divestments were factored into the 2018 earnings guidance.

Mr Dundas, who stepped down from his role on Tuesday, said the trust would continue to transition the portfolio from non-core assets into larger centres where it could add value through active management.

“We are also reducing the trust’s exposure to free-standing and smaller neighbourhood assets with lower growth profiles.”

Mr Dundas has been replaced by Greg Chubb, the group executive retail at Charter Hall.

Brokers said Charter Hall Retail remains a relatively defensive proposition with most income underpinned by strong covenants to largely non-discretionary retailers Woolworths and Coles.

The REIT has also continued its capital management strategy to “optimise shareholder returns”, buying back $5 million of units at $3.94 per unit during the quarter.

But the brokers at CLSA said there were “limited catalysts for Charter Hall Retail REIT to rerate as its high gearing of 36.2 per cent at June 3 30, 2017, limits its ability to meaningfully increase its buyback”.

“However, a sale of Gordon Centre may be a potential trigger but would take time to execute,” the CLSA brokers said.

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