Charter Hall Retail REIT (ASX:CQR)

David Harrison
Managing Director and CEO
Market Cap (AUD): 1.91B
Sector: Real Estate
Last Trade (AUD): 4.335 +0.03 (+0.58%)
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1. About

Charter Hall Retail REIT invests in high quality Australian convenience and convenience plus shopping centres. Its Australian portfolio is geographically diverse and benefits from exposure to key markets along the eastern seaboard and across a number of high growth regions. 

Charter Hall Retail REIT is managed by Charter Hall Group (ASX:CHC), one of Australia’s leading property groups which owns and manages office, retail and industrial properties. Charter Hall has over 28 years experience managing high quality office, retail and industrial property on behalf of institutional, wholesale and retail clients, with funds under management totalling $28.4 billion.

2. Business model

 

The Company operates the following divisions:[1]

 

Divisions

Revenue ($’M)

% of Total Revenue

% of Operating Earnings

Profit drivers[2]

REIT

$226.9

100.0%

100.0%

The rise in net tangible assets per security of 2.2% to $4.22 is due in a roughly equal measure to an increase in rental revenue and tightening cap rates. The gains made over the 2018 financial year are a result of the sustained income growth. Key to Group’s year of transition has been the improvement in portfolio quality, demonstrated by the high volume of executed transactions resulting in  improved portfolio operations

3. Strategy

 

Active  management:[3]

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

 

Enhance  portfolio quality:

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

 

Prudent capital  management:

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

4. Markets

 

The Group operates in markets including:[4]

 

Industry (Australia)

Industry Revenue (2018)

Growth Rate (Annual 13-18)

Retail property operators

$23 billion

6%

5. Competition

 

Major competitors include:[5]

 

  • ALE Property Group (ASX:LEP)
  • Investa (ASX:IOF)
  • DEXUS Property Group (ASX: DXS)

6. History

 

1991[6]   

Charter Hall launched in Sydney by current executive, Cedric Fuchs together with David Southon (Joint Managing Director from 2004 - 2016 and Executive Director until February 2016) and Andre Biet (Managing Director from 1991 to 2004 and Executive Director until October 2007).

 

1994   

Between 1991 and 1994 the initial focused was on commercial property advisory work.

 

1995   

First syndicate launched. CHIF1 is the first in a series focusing on high quality single and multi-asset property syndicates

 

1996   

first institutional opportunistic property fund launched with AMP Capital. First of a series of five opportunistic funds largely comprising Australian superannuation funds.

 

2004   

Transfield Holdings acquired 50% of Charter Hall.

 

2005   

Charter Hall listed on the ASX.

 

2006   

Launched the Core Plus Office Fund, the first in a series of long-term, open- ended core investment vehicles.

 

2007

Launched the Core Plus Industrial Fund.

 

2009

The Gandel Group acquired a strategic 12% interest in Charter Hall invested significant capital in the unlisted Core Plus Office Fund.

 

2010   

Charter Hall acquired the management rights to Macquarie Group’s real estate funds management platform, increased its funds under management total to over $10 billion.

 

2011   

Charter Hall celebrated its 20 year anniversary.

 

2012   

Established the first Bunnings Partnership launching BP1.

 

2013   

Charter Hall launched the $400 million Core Logistics Partnership.

 

2014   

In partnership with Host Plus Charter Hall acquired 54 hospitality assets leased to ALH for $603m.

 

2015   

Charter Hall raised $225 million in equity, enabling the Group to fund identified equity investments alongside its capital partners and to provide capacity for future co-investments.

 

2016   

Acquired the Arana Hills Plaza

 

2017   

Acquired Salamander Bay Centre

Acquired Highfields Village

 

2018   

Acquired Gateway Plaza

7. Team

     

Board of Directors and Management[7]

 

John Harkness – Independent Chairman

Sue Palmer – Independent Director

Michael Gorman – Independent Director

David Harrison – Managing Director and Group CEO

Greg Chubb – Retail CEO

Mr. Roger Davis – independent Non-Executive Director & Chair-Elect

Mark Bryant – Joint Company Secretary[8]

Charisse Nortjé – Joint Company Secretary[9]


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8. Financials

 

2018 Full Year Results Presentation

      

Financial Year 2017/18 (ended 30 June):[10]

 

Division

Revenue ($’M)

% Change

Operating Earnings ($’M)

% Change

REIT

$226.9

5.02%

$123.2

(0.08%)

Total

$226.9

5.02%

$123.2

(0.08%)

9. Risk

 

Major risks include:[11]

 

Capital risk

Prudent capital management is one of the key strategies of the REIT, aligning with the REIT’s resilient portfolio of non-discretionary Australian supermarket anchored shopping centres.

The REIT sources its capital through:

  • Debt sourced from a diverse mix of local and international banks and the US private placement bond market
  •  The listed Australian equity market

The REIT is able to alter its capital mix by issuing new units, utilising the DRP, electing to have the DRP underwritten, adjusting the amount of distributions paid, activating a unit buy-back program or selling assets to reduce borrowings.

 

Financial risk

The REIT’s principal financial instruments comprise cash and cash equivalents, receivables, payables, interest bearing liabilities and derivative financial instruments. The table below shows the REIT’s exposure to a variety of financial risks and the various measures it uses to monitor exposures to these types of risks. The REIT manages its exposure to these financial risks in accordance with the REIT’s Financial Risk Management (FRM) policy as approved by the Board. The policy sets out the REIT’s approach to managing financial risks, the policies and controls utilised to minimise the potential impact of these risks on its performance and the roles and responsibilities of those involved in the management of these financial risks. Derivative financial instruments are used exclusively for hedging purposes and not for trading or speculative purposes.

 

Market risk

Foreign exchange risk

The risk that changes in foreign exchange rates will change the Australian dollar value of the REIT’s foreign denominated net assets or earnings.

 

Interest rate risk

The risk that changes in interest rates will change the fair value or cash flows of the REIT’s monetary assets and liabilities.

 

Liquidity risk

The risk that the REIT has insufficient liquid assets to meet its obligations as they become due and payable.

 

Credit risk

The risk a contracting entity will not complete its obligations under a contract and will cause the REIT to make a financial loss.

References

  1. ^ Annual Report 2018, P. 32, 37
    https://www.listcorp.com/asx/cqr/charter-hall-retail/news/annual-report-1983624.html
  2. ^ Annual Report 2018, P.4
    https://www.listcorp.com/asx/cqr/charter-hall-retail/news/annual-report-1983624.html
  3. ^ Annual Report 2018, P. 02
    https://www.listcorp.com/asx/cqr/charter-hall-retail/news/annual-report-1983624.html
  4. ^ http://www.ibisworld.com.au/industry/default.aspx?indid=1894
  5. ^ https://www.owler.com/company/charterhall
  6. ^ https://www.charterhall.com.au/About-Us/Our-History/ https://www.listcorp.com/asx/cqr/charter-hall-retail/news/december-distribution-and-arana-hills-acquisition-1484749.html
    https://www.listcorp.com/asx/cqr/charter-hall-retail/news/acquisition-of-salamander-bay-centre-1606367.html
    https://www.listcorp.com/asx/cqr/charter-hall-retail/news/acquisition-of-highfields-village-1619632.html
    https://www.listcorp.com/asx/cqr/charter-hall-retail/news/cqr-establishes-new-partnership-to-acquire-gateway-plaza-1899974.html
  7. ^ https://www.charterhall.com.au/Funds/Retail/Charter-Hall-Retail-REIT/About/Board-of-Directors/
  8. ^ https://www.listcorp.com/asx/cqr/charter-hall-retail/news/joint-company-secretary-resignation-1544890.html
  9. ^ https://www.listcorp.com/asx/cqr/charter-hall-retail/news/appointment-of-joint-company-secretary-1665148.html
  10. ^ Annual Report 2018, P. 32, 37
    https://www.listcorp.com/asx/cqr/charter-hall-retail/news/annual-report-1983624.html
  11. ^ Annual Report 2018, P. 44, 49
    https://www.listcorp.com/asx/cqr/charter-hall-retail/news/annual-report-1983624.html