Portfolio Value: $5.5 billion diversified real estate portfolio. Occupancy Level: 99.8% occupancy. Weighted Average Lease Expiry (WALE): 9.7 years. Operating Earnings: $0.1205 per security for the half year. Net Tangible Assets (NTA): $4.62 per security as of December 31, 2024. Like-for-Like Net Property Income Growth: 3.5% over the prior corresponding period. Triple Net Lease Income: 53% of income from triple net lease properties. Asset Sales Program: Completed $300 million of contracted divestments. Buyback Program: Completed $50 million buyback of CLW securities. Balance Sheet Gearing: 31.8% after divestment program. Credit Rating: Moody's BAA1 investment grade. Reduction in Operating Expenses: 17.5% reduction. Reduction in Finance Costs: 15.6% reduction. Weighted Average Cost of Debt: Increased from 4% to 4.1%. Net Property Divestments: $289 million completed. Debt Refinancing: $310 million refinanced, extending term to FY30. Cash and Undrawn Debt Capacity: $266 million as of December 31, 2024. Portfolio Cap Rate: 5.4% as of December 31, 2024. Distribution Yield: 6.4% based on closing price.

Warning! GuruFocus has detected 7 Warning Signs with ASX:CLW.

Release Date: February 06, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Charter Hall Long WALE REIT (ASX:CLW) has a diversified real estate portfolio valued at $5.5 billion, with a high occupancy rate of 99.8% and a weighted average lease term of 9.7 years. The REIT achieved a 3.5% like-for-like net property income growth, benefiting from 54% of its income being CPI-linked. The portfolio is secured by long leases to blue-chip tenants, with 99% of tenants being government, ASX-listed, multinational, or national businesses. The REIT completed a $50 million buyback of securities, demonstrating strong capital management and maintaining a gearing ratio within the target range. Moody's reaffirmed the REIT's BAA1 investment-grade credit rating, indicating financial stability and strong creditworthiness.

Negative Points

The REIT's net tangible assets per security remained relatively stable, with minor reductions due to property revaluations and interest rate swap movements. There was a 17.5% reduction in operating expenses and a 15.6% reduction in finance costs, primarily due to divestment activities, which may impact future income streams. The REIT's weighted average cost of debt increased slightly from 4% to 4.1%, indicating rising financing costs. The REIT completed $289 million of net property divestments, which could potentially limit future growth opportunities. The REIT's portfolio cap rate has increased by 100 basis points over the past 2.5 years, reflecting potential challenges in maintaining property valuations.

Story Continues

Q & A Highlights

Q: Regarding the buyback completed in the first half, is there a weaker moving part since guidance remains unchanged? A: No, the guidance includes the impact of the buyback, which was done at a 6.4% yield. It has an immaterial impact, so the $0.25 guidance remains unchanged. The full impact will be seen in FY26. - Scott Martin, Head of Finance

Q: Have there been any changes to debt covenants, and where do you stand against them? A: No changes have been made to the covenants. We continue to monitor balance sheet and look-through gearing metrics, which have materially reduced due to the sales program. Valuations have remained stable, so there is no material change to covenant metrics since June. - Scott Martin, Head of Finance

Q: Did you consider extending the buyback given the 15% discount to NTA? A: We completed the $50 million buyback as announced, using excess proceeds from our divestment program. There is no intention to extend it further at this stage, as it impacts gearing. - Avi Anger, Fund Manager

Q: Can you provide an indication of the costs for the Perth airport shed expansion? A: The cost for our 49.9% share is just under $30 million. We are not disclosing the yield on cost, but it is well above our cost of debt, making it a positive impact for CLW. - Avi Anger, Fund Manager

Q: What are the costs assumed in guidance for this year? A: We have rolled three-quarters of our floating rate debt exposure at around 4.4%. The remaining quarter rolls in March, and we do not forecast a material reduction in that Q4 debt role. - Scott Martin, Head of Finance

Q: Can you update on the A LE portfolio underrenting situation? A: At the time of the A LE transaction in late 2021, rents were about 37% below market levels. We haven't updated since, but they are at least that today. The market rent review is in 2028, and we will realize it then unless brought forward. - Avi Anger, Fund Manager

Q: Has the Coles facility extension in WA been reflected in the 31 December carrying value? A: No, it will be reflected upon completion as we spend the money, adding to the cost base of the asset. It will be valued on completion of the works. - Avi Anger, Fund Manager

Q: Are you considering investing in data centers going forward? A: We will consider data center assets if presented. The reference to data centers reflects the equipment in our exchange properties and Telstra's edge computing rollout, which may utilize our properties. - Avi Anger, Fund Manager

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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