Charter Hall Retail REIT

CQR Details

Change in Shareholder’s Interest: Charter Hall Retail REIT (ASX: CQR) is a leading owner and manager of property for convenience retailers. In a recent update, the company stated that, Pendal Group Limited, a substantial holder of the company, has decreased its voting power from 9.66% to 8.28%.

Acquisition of Ampol Fuel & Convenience Retail Centres:

• On 1 December 2021, CQR informed the market that it will acquire 49% interest in a portfolio of 20 triple net leased (NNN) Ampol Fuel & Convenience Retail Centre. The purchase consideration was $50.5 million on an attractive 5.0% cap rate. The outstanding 51% interest will be held by Ampol.
• The buyout will mark CQR’s eighth-largest tenant and will depict ~1% of portfolio income, adding another major tenant to CQR’s tenant mix. The move will further augment the resilience of CQR’s portfolio income.
• The company will fund the buyout from its existing debt facilities and is anticipated to settle in February 2022. Post-acquisition, proforma look-though gearing is expected to be in the range of 30%-40%.

Managerial Changes: In another update, the company announced that it had appointed Rebekah Hourigan, together with Mark Bryant, as a Joint Company Secretary of Charter Hall Retail Management Limited.

1QFY22 Trading Update: During Q1FY22, the company witnessed improved trading performance across its portfolio, despite the impacts of lockdowns and trading restrictions in New South Wales and Victoria.

• Supermarket sales growth increased to 5.1% in Q1FY22, reflecting the continued strength of in-home consumption.
• Occupancy across the portfolio remained stable at 98.3%. Over the quarter, renewal activity has shown positive signs, with many tenants opting to take lease extensions during COVID-19 lease support negotiations.
• During the quarter, the rent collections also returned towards pre-COVID levels reflecting the improved trading conditions. Notably, 90% of Q1 FY22 rents have been collected, with 6.7% of Q1 rents provided as tenant support, and 3.3% of Q1 rent remaining outstanding for collection.

Revenue Highlight (Source: Analysis by Kalkine Group)

Key Risks: There is always a risk for the company failing to meet its financial obligations as and when they are due to pay. The company operates in multiple countries. Any severe movement in foreign exchange prices may lead to financial losses for the company. 

Outlook: Due to the acquisition and underlying performance synergies, the company has updated its previously issued earnings and distribution guidance. For FY22, the company expects earnings per unit (EPU) to be no less than 28.2 cents per unit (cpu), depicting a minimum growth of 3.3% on FY21 earnings per unit. Earlier, the company had provided a guidance range of 27.8 and 28.2 cents per unit. Further, FY22 distributions per unit (DPU) are now expected to be a minimum of 24.3 cpu, compared to the earlier guided range of 23.9 and 24.3 cpu.

Valuation Methodology: P/E based Relative Valuation Method (Illustrative)

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: In the last nine months, CQR went up by ~12.1%. The stock is currently trading above the average 52-week price level range of ~$3.36-~$4.29. The stock has support and resistance level of $3.48 and $4.2, respectively. The stock has been valued using the P/E multiple-based illustrative relative valuation method and arrived at a target price with a correction of low-single-digit (in % terms). The company can trade at a slight discount as compared to its peers, considering the COVID-19 led impact, climate related risks, government regulations, etc. For this purpose, peers such as Vicinity Centres (ASX: VCX), Scentre Group (ASX: SCG), Stockland Corporation Ltd (ASX: SGP) have been considered. Considering the current trading level, the indicative downside in the valuation, volatility in the market due to COVID-19, and key risks associated with the business, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the closing market price of $4.180, up by ~0.48% as on 8 December 2021.

CQR Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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